Country risk refers to the possibilities of events or political changes within a nation having a negative impact on investors and traders. Country risk encompasses the possibility of war and political upheaval as well as less severe changes like looser monetary policies.
The health of a nations currency closely follows the health of the nation in general. If a trader is long in a currency and that nation goes to war, the currency usually dips on the negative news. However, because forex traders take up positions using currency pairs, one trader’s losses due to country risks is another trader’s gain.
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