Macro Risk

What is ‘Macro Risk’

A type of political risk in which political actions in a host country can adversely affect all foreign operations. Macro risk can come about from events that may or may not be in the reigning government’s control.

Explaining ‘Macro Risk’

For example, any company that is engaging in foreign direct investment in a country that is on the verge of switching to an anti-foreigner slanted government would be facing tremendous macro risk, because the government is likely to expropriate any and all foreign operations, regardless of industry.

There are many organizations that provide reports and information on the degree of political risk that a country may possess. Furthermore, companies have the opportunity to purchase political risk insurance from a variety of organizations in order to mitigate potential losses.

Further Reading

  • Macro risk premium and intermediary balance sheet quantities – [PDF]
  • Managing risk using macro-financial risk analysis – [PDF]
  • When micro prudence increases macro risk: The destabilizing effects of financial innovation, leverage, and diversification – [PDF]
  • Accounting for macro-finance trends: Market power, intangibles, and risk premia – [PDF]
  • Why Gaussian macro-finance term structure models are (nearly) unconstrained factor-VARs – [PDF]
  • Variable rare disasters: A tractable theory of ten puzzles in macro-finance – [PDF]
  • Macro-financial vulnerabilities and future financial stress-Assessing systemic risks and predicting systemic events – [PDF]
  • Variable rare disasters: An exactly solved framework for ten puzzles in macro-finance – [PDF]