sovereign risk

Sovereign Risk

The risk that a foreign central bank will alter its foreign-exchange regulations thereby significantly reducing or completely nulling the value of foreign-exchange contracts.

Notes:

This is one of the many risks that an investor faces when holding forex contracts. Additionally an investor is exposed to interest-rate risk, price risk and liquidity risk amongst others.

See also: Country Risk, Default, Interest-Rate Risk, Liquidity Risk, Political Risk, Price Risk, Systematic Risk, Unsystematic Risk

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Sovereign risk

The risk that a central bank will impose foreign exchange regulations that will reduce or negate the value of foreign exchange contracts. Also refers to the risk of government default on a loan made to a country or guaranteed by it. The government's part of political risk.

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sovereign risk

The risk of owning the security of an issuer in a country other than the one in which the investor lives. For example, an investor residing in the United States incurs sovereign risk in purchasing a bond issued by the government of Brazil. This risk stems from the fact that a foreign country may nationalize its private businesses, stop paying interest, or repudiate its debt.