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Fin444 Assignment 2 Jebins Part

Finance assignment

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20 views

Fin444 Assignment 2 Jebins Part

Finance assignment

Uploaded by

Arafat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Country risk describes the unpredictability of investing in a

nation, potentially leading to investor losses due to political,


economic, exchange-rate, or technological factors .
https://www.investopedia.com/terms/c/
countryrisk.asp#:~:text=Country risk refers to the,-rate, or
technological influences.
With the exception of factors exclusive to a company or in-
dustry, a macro-assessment of national risk assesses the total
risk of a nation. The precise effects that the country's risk fac-
tors have on the MNC's business type are the main subject of
a micro-assessment of country risk. This customised evalua-
tion is required because MNCs may be impacted differently
by different types of country risk.
1. Economic Risk: Significant changes in a country's eco-
nomic structure or growth rate that affect investment re-
turns. This includes government expenditures, tax poli-
cies, debt levels, monetary policy, economic openness,
and long-term growth factors.
2. Transfer Risk: Arises when a foreign government re-
stricts capital movements, preventing repatriation of
profits, dividends, or capital.
3. Exchange Risk: Involves unexpected adverse move-
ments in exchange rates or changes in currency regimes.
While short-term risks can be hedged, long-term invest-
ments face higher risks unless natural hedges are devel-
oped.
4. Location or Neighborhood Risk: Involves spillover ef-
fects from regional issues or problems with trading part-
ners or similar countries. Assessed by geographic posi-
tion, trading alliances, size, borders, and proximity to
significant regions.
5. Sovereign Risk: Pertains to the likelihood of a govern-
ment defaulting on loans or reneging on guarantees. It re-
lates to transfer risk if foreign exchange shortages occur,
and to political risk if the government decides not to
honor commitments for political reasons.
6. Political Risk: Involves changes in political institutions
due to shifts in government control, social dynamics, or
non-economic factors. Includes risks of internal and ex-
ternal conflicts, expropriation, and changes in gover-
nance.
https://ebooks.inflibnet.ac.in/mgmtp08/chapter/country-risk-analysis/

Significance for Multinational Corporations (MNCs)


and Investors
• Investment Decisions: Assessing the feasibility of enter-
ing or expanding in a foreign market. High-risk countries
may deter investment or require higher returns.
• Strategic Planning: Creating plans to mitigate negative
impacts, such as diversifying assets or purchasing politi-
cal risk insurance.
• Operational Effectiveness: Ensuring stability and effi-
ciency in supply chain management, sourcing, and pro-
duction locations.
• Financial Decisions: Managing financial risks from eco-
nomic instability and currency fluctuations, informing
capital allocation and hedging strategies.

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