لخّصلي

The last 60 years have seen the economic and financial environment evolve into a complex system of globalized markets whose effects are felt in all countries at all levels of society.However, because of the interconnectedness of the world economy, events or anticipated events at the country level affect not only the performance of individual resident economic and financial agents and their relative performance vis `avis the rest of the world, they also affect non-resident economic agents doing business in the country or competing with local companies in foreign markets.They also have direct investments abroad as well as access to foreign financing.

The last 60 years have seen the economic and financial environment evolve into a complex system of globalized markets whose effects are felt in all countries at all levels of society. Even small and medium sized companies have foreign clients and/or suppliers as well as foreign competitors either exporting or producing locally. Many, if not most, of the large multinational companies now do more business outside the frontiers of the countries where they are incorporated. They also have direct investments abroad as well as access to foreign financing. The resulting transactions involving foreign markets and currencies have to be negotiated, financed, and settled. As a result, banks have accompanied their clients abroad and now routinely borrow and lend on a worldwide basis. Portfolio investors have also followed them and look to markets around the globe as a means of enhancing their returns and exploiting diversification opportunities. Although companies, banks and investors have learned to take
advantage of the opportunities for the lower costs, increased returns and diversification benefits to be gained from the global economic and financial markets, experience has shown that these opportunities come at the expense of other risks that would not otherwise be present. There are cultural differences in institutions, legal and financial traditions, information sources and the like. There are also other serious constraints that include legal barriers, transactions costs, and discriminatory taxation that can affect the outcome of a cross-border financial operation. These risks are rooted in the fact that the world economy is organized around the concept of country and national sovereignty. Each country has its own economic, financial, political and legal organization, which determines how resources will be allocated and income distributed within the geographic area it controls. However, because of the interconnectedness of the world economy, events or anticipated events at the country level affect not only the performance of individual resident economic and financial agents and their relative performance vis `avis the rest of the world, they also affect non-resident economic agents doing business in the country or competing with local companies in foreign markets. Overall, the risk associated with international economic and financial transactions includes a wide-ranging set of complex factors encompassing political, social, geographic, and strategic considerations that could affect the outcome of an economic or financial transaction. As a concept, then, country risk or cross-border risk, as it is sometimes called, is vast and complex. It refers to the effects on economic and financial transactions caused by events associated with a particular country as opposed to events associated with a particular economic or financial agent or asset.