Posted in Finance, Accounting and Economics Terms, Total Reads: 365
Definition: Jurisdiction Risk
An intrinsic risk due to operating in foreign jurisdiction (mostly foreign country), or due to unexpected changes in laws affecting investments. It creates unpredictability and results in higher risk so investors may demand higher returns. Investments in after or stable jurisdictions will require lower returns by investors. Jurisdiction risk is assumed to be higher in countries which have been categorized as non-cooperative or have been recognized by U.S Treasury as requiring special procedures because of concerns about corruption or money laundering.
If you are considering an investment in 2 different countries in similar projects, which investment is safer depends upon your assessment of the jurisdiction risk. One has to consider the factors such as political and economic instability to assess the risk. One may analyze tax systems, inflation, demographics, education system, indication of corruption or terrorism and other sources of instability. For example, if government defaults on bond or security payments, the country’s economy may get hit adversely.