|
|
This is only a preview of the paper
Click here to register and get the full text.
Existing members click here to login
|
|
|
VARIABLES OF RISK
POLITICAL RISK
Leadership Succession
In all countries, especially with authoritarian political systems, leadership succession is a very important political problem. It becomes a political risk when rules for a easy change of political leadership have not been constitutionally established or have not gained legitimacy among the public. ... Even in societies where official corruption is acceptable, it becomes a problem of political risk.
Civil Disorder: Violence and Terrorism
The risk analyst must consider the effects of organized mass violence (through unions, associations, parties or student groups). ...
FINANCIAL AND COMMERCIAL RISK
As it is a clear fact, the risks involved in financial transactions, particularly in developing countries, are at once political and economic. Political and economic risk are like twins and cannot be separated. ... Political risk involves the possibility of financial loss due to government actions such as expropriation, the imposition of crippling legal restrictions, a freeze of assets, insistence on divestment, or disruptions from various types of popular agitation and civil disorders. Financial risk, on the other hand, entails currency and related problems such as devaluation, inconvertibility, delays in payment, rescheduling of external debt, default, and deposit blockages. Although the causes of the two sets of risks cannot always be separated into political/social or macroeconomic variables, we can analyze the salient economic indicators. ... Edition)
Although it is impossible to estimate absolute certainty what risks are associated with investment in a particular country, it is possible for the treasurer or finance department, with the assistance of the political risk department, to develop an accurate, up-to-date assessment of those factors for example; foreign exchange fluctuation and control, devaluation, and payment delays. This part of the country risk evaluation, if it is well researched and carefully organized, can be presented in a detailed form. ... The financial risk evaluation of a country , therefore, begins with a summary that quickly establishes the details of this context and isolates the key factors involved. ... The financial risk picture in a given country becomes clarified but is not oversimplified. ... This method of financial risk analysis is very useful for companies whose projects have long periods and where project financing depends on future local earnings to either repay the loan involved or to compensate the parent multinational company.
TECHNIQUES TO ASSESS COUNTRY RISK
Once a firm identifies all the macro and micro factors that are important to consider in the country risk assessment, it could be needed to establish a system for evaluating these factors and determining a country risk rating. ... Some of the more popular techniques are:
• Checklist approach
• Delphi technique
• Quantitative analysis
• Inspection Visits
• Combination of techniques
Checklist Approach
A checklist approach involves judgment on all the political and financial factors that contribute to a firms assessment of country risk. ...
Delphi Technique
The Delphi technique involves the collection of independent opinions on country risk without group discussion by the assessors who provided these opinions. ... The multinational company can average these country risk scores in some manner and even assess the degree of disagreement by measuring dispersion of opinions.
Quantitative Analysis
Once the financial and political variables have been measured for a period of time, models for quantitative analysis can attempt to identify the characteristics that influence the level of country risk. ... To illustrate, assume there are some countries that historically can be classified as exhibiting tolerable risk while other countries exhibit intolerable risk. Discriminant analysis can examine the financial and political factors of all of these countries and attempt to identify which factors help to distinguish (or discriminate) between a tolerable-risk country and an intolerable-risk country. For example, Discriminant analysis may find that real growth in GNP is a crucial variable in explaining why a country is a good or bad risk. ... If real GNP growth and other key variables begin to deteriorate for a particular country, this provides a signal that the country risk is increasing.
Regression analysis may also be used to assess risk, since it can measure the sensitivity of one variable to other variables. ... This is valuable information to incorporate in the overall evaluation of country risk.
Approximate Word count = 3386
Approximate Pages = 13.5
(250 words per page double spaced)
|
|
|
|
|
|