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Finance and Credit
 

Country risk in banking

Vol. 21, Iss. 14, APRIL 2015

PDF  Article PDF Version

Available online: 6 April 2015

Subject Heading: Banking

JEL Classification: 

Pages: 21-30

Sofronova V.V. National Research University - Higher School of Economics, Nizhny Novgorod Branch, Nizhny Novgorod, Russian Federation
valentina.nnov@mail.ru

Pleskova I.A. National Research University - Higher School of Economics, Nizhny Novgorod Branch, Nizhny Novgorod, Russian Federation
pl_ira@mail.ru

Subject Russia's integration into the global processes of the world economy and politics, and subsequent expansion of international foreign exchange, credit and financial transactions bear additional risks for Russian credit organizations. The accepted name of such risks is country risks. Non-availability of adequate theoretical and methodological framework for identification and assessment of this type of risk makes the subject of the study particularly relevant.
     Objectives The objectives include the study of the degree of impact of various factors on the country risk value; the analysis of such factors as the condition of the budget and the balance of payments, the availability of international reserves, etc.
     Methods In the paper, we applied an econometric analysis and built an econometric model of country risk. By using this model, we tested the hypothesis about relationship of the chosen factors and country risk.
     Results We identified a positive dependence between the size of country risk and the level of public debt, as well as tight monetary policy, and a negative dependence between country risk and the balance of payments.
     Conclusions We have formulated conclusions about potential growth of country risk in Russian credit organizations, provided a unique interpretation of the country risk definition, and defined the factors affecting the country risk. We also proposed the major ways to minimize country risk in credit institutions. The results of the study may be useful for credit institutions to assess country risk when placing funds in foreign countries.

Keywords: country risk, monetary policy, nominal, face, interest rate

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