The final step in understanding country risk is to put the three risk measures (economic, currency, and inflationary) together. The composite ranking shows that the United States has the lowest risk and Timor-Leste the highest.
The radar graph below shows the risk measures of one or more countries. We have also included the world median values. The axes scales are 0-100. Note that companies look differently on the risk. A totally domestic company does not care about currency risk; some companies are less sensitive to inflation, etc. All companies, however, care about economic risk.
It is interesting to see how the risk profile of each continent differs. North America has the lowest total risk, Africa the highest.
The detailed risk measures are shown below. The total index is the sum of economic risk (scaled 0-100) and currency risk (scaled 0-100) + 20% of inflation risk*, then rescaled so that the total index goes from 0 to 100. As in the previous posts, later years are given more weight.
Go to the first installment in this series: Economic Risk
Go to the second installment in this series: Currency Risk
Go to the third installment in this series: Inflation Risk
* We give inflationary risk a lower weight because it is not as important to a global company as economic or currency risk. The exact weights differ by company, so this is for illustrative purposes only.