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currency instability, high or unstable interest rates, etc.) and environ- mental risk (war, labour disruption, natural disaster, etc.). A potential source of confusion when discussing country risk is that some valuers adjust the discount rate to try to take account of all of these “country risks”, whereas other valuers adjust the discount rate only to take account of risk as commonly understood in valuation theory (variability of future cash flows around anticipated returns). If taking the latter approach, valuers may consider whether it is also necessary to modify cash flow projections to take account of adverse outcomes associated with investments in the relevant country. COUNTRY RISK IN INTERNATIONAL ARBITRATION The characteristics of an investment may affect its exposure to country risk, and should be taken into account when valuing a busi- ness interest in a country. Consider the differences in the risk pro- files of two companies investing in different businesses in the same country on the same date. One investment is made in a company that extracts a natural resource that is sold on world export markets in hard currency. The other is a manufacturing business that relies on domestic inputs and sells its products on domestic markets in local currency. Clearly these two investments made on the same date, in the same country, face different exposure to the country risks of the host state. Of particular relevance in a number of recent arbitral awards is the extent to which tribunals should take account of a state’s propensity to expropriate when valuing expropriated assets. Since market condi- tions, timing of investment, and the nature of investment are unique to each dispute, there is no one approach that can fit all cases. Investments tend to "price in” the chance of expropriation, so that if 29