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

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

Continuity risk from leadership changes and the threat of nationalization is a political-structure determinant of country risk. The other choices (commodity dependence, growth volatility, current account deficit) describe the economy's structure or performance, not the political system or institutions.

  1. AThe degree of dependence of the economy on a single commodity export
  2. BThe extent to which the country's government is subject to continuity risk from changes in leadership and the risk of nationalizationCorrect
  3. CThe country's level of GDP growth volatility
  4. DThe size of the country's current account deficit relative to GDP

Explanation

Political structure covers how stable and predictable government, institutions and the legal system are, including continuity risk, expropriation and corruption. Commodity dependence, growth volatility and current account deficits are economic-structure or economic-performance factors, so they are wrong here.

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