Describe the two elements that contribute to country risk. Provide examples of countries with high and low country risk, and explain the reasons for these two distinctions.

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The Answer is The two elements that determine a nation's country risk are the political system and legal system. A political system refers to a set of formal institutions that constitute government. It includes legislative bodies, political parties, lobbying groups, and trade unions. A political system also defines how these groups interact with each other. A legal system refers to a system for interpreting and enforcing the laws. The laws, regulations, and rules establish norms for conduct. A legal system incorporates institutions and procedures for ensuring order and resolving disputes in commercial activities, as well as protecting intellectual property, and taxing economic output. Political and legal systems are both dynamic and constantly changing. The two systems are interdependent because changes in one affect the other.
Country risk can be high or low depending on the political and legal systems of a country. In the wake of war and the emergence of a new political regime, Iraq is one of the riskiest countries. Zimbabwe is risky because of ongoing corruption (bribery and fraud) and political turmoil. By contrast, Singapore and Canada are characterized with low country risk.
Country risk may affect all firms in a country equally or only a subset. For example, unrest in Zimbabwe has tended to affect all firms in that country. By contrast, in 2017 the Venezuelan government seized a factory owned by General Motors despite the presence of several competitors in Venezuela, such as Toyota and Fiat Chrysler.

Describe the Two Elements That Contribute to Country Risk