Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Macro Risk

What it is:

Macro risk is the risk that the political activity in a country will affect the operations of foreign companies that do business in that country.

How it works (Example):

For example, let's say the government of the country of Cyprus is facing a fiscal crisis and decides to seize a portion of all the money in bank accounts held in the country. If American company Company XYZ does business in Cyprus and has a bank account there, some of its assets are therefore subject to the whims of the Cyprus government. In fact, any company doing business in Cyprus probably has a bank account there and thus faces this risk of seized assets. Accordingly, the crisis in Cyprus isn't contained to Cyprus -- it represents macro risk because it has ramifications for businesses around the world.

Why it Matters:

Macro risk is a major factor for international businesses, and thus it influences stock returns and portfolio strategy in turn. Macro risk is also a major factor in currency valuation.

It is important to note that macro risk is not always within a foreign government's control. Situations such as war, natural disaster or crop-destroying weather also can create macro risk.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...