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FRM Part I · FRM Exam Part I · Country Risk: Determinants, Measures, and Implications

In Damodaran's framework on country risk, which of the following is a political-structure determinant of a country's risk exposure rather than an economic-structure determinant?

Continuity of government policy and the risk of expropriation is a political-structure determinant. It reflects how stable and predictable the political system and institutions are, whereas commodity dependence, current account deficits and public debt describe a country's economic or fiscal structure rather than its political structure.

  1. ADegree of reliance on a single commodity export
  2. BContinuity of government policy and the risk of expropriationCorrect
  3. CSize of the country's current account deficit
  4. DLevel of public debt relative to GDP

Explanation

Political structure determinants concern the political system, such as policy continuity, corruption, expropriation risk and the independence of institutions. Commodity dependence, current account deficits and public debt are all features of the economic structure or its fiscal and external position, so they are not political-structure items.

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