Country Risk is the risk associated with the possibility that a foreign government will default in honouring its bonds or other financial commitments when they fall due. Beyond that, country risk relates to the social, economic, and political conditions prevailing in the country that affect the financial and equity markets and uncertainty associated with doing business in that country. In business valuation, country risk is factored into the computation of the discount rate of firms operating across countries to compensate for the volatility in equity markets and currencies as well as default risks of bonds issued by the Governments.