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Country specific risk is not something that firms have to worry about since it can be...

Country specific risk is not something that firms have to worry about since it can be diversified away by creating a portfolio.

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Answer #1

The statement is not correct, since country specific risk is not something which is unsystematic risk which can be diversified away, rather country specific risk is categorised as systematic risk.

Country risk refers to the risk that a country won't be able to honor its financial commitments. When a country defaults on its obligations, it can harm the performance of all other financial instruments in that country – as well as other countries it has relations with.

systematic risk can include interest rate risk, inflation risk, currency risk, liquidity risk, country risk, and sociopolitical risk. Unsystematic risk, also known as specific risk or idiosyncratic risk, is a category of risk that only affects an industry or a particular company.

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