These days, it’s very difficult to find a company that is only exposed to domestic risk, according to Aswath Damodaran (New York University Stern School of Business) in his midyear 2019 country risk update that includes free spreadsheets on country risk premiums, sovereign credit default swap (CDS) spreads, corruption scores, political risk scores, and more. He also points out that a company’s exposure to country risk should not be determined by where it is incorporated and traded but rather from where it gets its revenue. No longer can country risk be diversified away because what happens in one country will have an impact on other countries. When valuing companies with substantial foreign operations, the country-specific input can be critical. A country risk premium must be used, by either adjusting the cash flows or changing the discount rate.
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