Times have been tough lately for a lot of folks: Rep. Anthony Weiner, Vancouver Canucks fans, and investors with exposure to Greek debt obligations. As Greece teeters on the brink of insolvency, markets around the world are becoming increasingly jittery. Investors are rightfully fearful of a potential Greek default that could touch off a domino effect, taking down much of Europe's financial system and forcing billions of dollars of losses on banks, shareholders, and taxpayers.

A day of reckoning
With each passing day, a Greek debt default looks more and more likely. While officials at the European Union and the International Monetary Fund are frantically attempting to come up with an aid package that would stave off default, the problems grow larger with each passing day. This week, yields on two-year Greek sovereign bonds jumped up to more than 30% for the first time ever. Likewise, yields on similar bond issues by Portugal and Ireland climbed to their highest level since the launch of the euro in 1999.

Earlier in the week, Standard & Poor's cut its credit rating on Greece's sovereign debt from B to CCC, the world's lowest, and noted that the risk of a debt restructuring is "increasingly likely." Greek government bonds have lost roughly 19% so far this year, while Portuguese debt instruments have fallen about 17%, according to Bloomberg. More financially stable eurozone nations like France and Germany have a vested interest in ensuring that Greece doesn't default, but at some point that may become a near eventuality.

Banking on losses
One of the most obvious casualties of a potential Greek default would be the banks and financial institutions that have exposure to the nation's debt. Here in the United States, several institutions could be on the hook. The latest figures from the Bank for International Settlements show that U.S. banks had total exposure of roughly $41 billion to Greece as of the end of 2010. However, most of that exposure appears to be indirect, tied to things like guarantees for sellers of credit derivatives contracts and other similar insurance obligations.

According to SEC filings, the firm with the largest direct exposure to Greece is Bank of America (NYSE: BAC), with about $447 million. And although Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) probably have some exposure, they weren't required to provide an exact amount on their filings, which means they probably have a small amount as a percentage of assets.

A Greek default might not rock our financial system, but it probably would drag down stock prices in the financial sector at least somewhat, so investors might want to tread lightly here.

Likewise, European banks are also potentially on the line for several billions of dollars in Greek debt exposure. French banks currently have nearly $57 billion in exposure to Greece, while German banks clock in with $34 billion in exposure. In fact, Moody's recently warned that it may downgrade the three largest listed French banks, BNP Paribas, Societe Generale, and Credit Agricole, because of their substantial exposure to Greek debt. Stock investors should carefully review how much exposure they have to European banks like these that are likely to be affected by a Greek default or restructuring.

A ticking time bomb
But the bigger concern here is that if Greece does default on its debt, there is an increasing risk that other precariously positioned financial nations, most likely Portugal or Ireland, would soon follow suit, throwing the global market into chaos. Clearly, Europe would be hit pretty hard by such a chain of events. That means if you own any mutual funds or exchange-traded funds that focus primarily on the European region, such as the Vanguard MSCI Europe ETF (NYSE: VGK), your fund could get thrown for a loop. A better idea is to keep your foreign exposure very broad to limit the effects of blowups in European nations. Here, a fund such as Vanguard Total International Stock Index ETF (NYSE: VXUS) will probably be a better risk-management tool.

If Greece defaults, or if several countries default, that would deal a harsh blow to the euro. And although such an event may not spell the end of the euro, it will put heavy downward pressure on the currency. So expect to see funds such as the CurrencyShares Euro Trust ETF (NYSE: FXE) take a hit. Of course, a default would also probably give a hefty boost to the price of gold, so folks who own a fund such as SPDR Gold Shares (NYSE: GLD) could see some more gains in the near future.

Investors should certainly be prepared for some potential upheaval in Europe in the coming months, but they also shouldn't panic and dump their foreign stock holdings. It might be a good idea to allocate any new money to other areas of the market, such as high-quality domestic large caps or emerging-market stocks. And make sure that any money you have dedicated to this troubled corner of the market is money that you won't need access to for at least five years. We may be in for a rough ride ahead, but by keeping a long-term focus, investors should be able to weather the storm.

For more winning mutual fund recommendations and time-tested personal financial planning advice, check out the Fool's Rule Your Retirement service. You can start your free 30-day trial today.