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ch9 (4) - Country risk refers to the additional...

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Country risk refers to the additional interest (relative to interest paid on a safe benchmark) the country must pay to compensate investors for the risk of default. Once a country defaults, its country risk will increase substantially for some time. It will face higher interest rates when it borrows. It may even be unable to borrow for a while. Defaults may trigger fiscal pain, crises, recessions. 3. Government: Policies and Performance Analyze how financial openness and transactions have changed in advanced countries, emerging markets, and developing countries over time. Discuss the choice of exchange regime and the prevalence of fixed versus floating exchange rate regimes. Financial openness and financial transactions Increased steadily since 1970 Most dramatic increase since the 1990s Patterns in integration and financial openness Advanced countries High income per person Well-integrated into the global economy Examples: U.S., European Union, Japan, OECD
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