In the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U. S. firms than for firms of other countries, everything else being equal. True False

Question

Social Studies

Quentin

18 March, 12:39

In the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U. S. firms than for firms of other countries, everything else being equal. True False

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Abbie Stark · Answer 1

True

Explanation:

The additional premium demanded by the investors so that they can compensate for the higher risk associated with investments in a foreign country compared to the domestic market is called country risk Premium.

Overseas investment is associated with higher risk due to macroeconomic and geopolitical factors, due to these risks the investors are wary of investing in foreign countries.

Country risk premium is affected by country fluctuations, government regulations, higher inflation and political instability. It is an important factor while deciding to invest in foreign markets. CPR can also affect the corporate finance calculations and valuations.