The risk of the macros

Market players are wary of various types of market risks that might result in a financial loss to them. The macro risks are the most significant ones that can impact the markets in a profound manner. So, what are these macro risks and how and why do they impact the markets? Let’s try to find out.

Macro risks broadly comprise of political and economic risks. Of the two, political risks are those that arise due to the political situation in a country or a region. A volatile international geopolitical situation due to escalating tensions between two or more countries, instability of the elected government, change in the government of a country, change in the economic policies of the government, internal social, communal or political disturbances, war or war-like situation with a neighbouring country are some of the political macro risks that send shivers down the spines of the financial markets.

The economic macro risks include fiscal deficit of the government, inflation rate, unemployment rate, price indices (WPI and CPI), monetary policy of the central bank, interest rates, exchange rates, agricultural commodity prices, industrial policy, and so on. Any positive or negative change in any of these variables can give the market thumbs up or the jitters.

International investors are exposed to global political and economic risks and hence they take into account the ratings of the countries done by international rating agencies such as S&P, Moody’s and Fitch before investing.