Nikhil Ibm
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Transcript of Nikhil Ibm
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Country Risk Analysis
Nikhil D. AdhavMBA 2nd Year
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What is Country Risk? Country risk refers to the risk of investing in a country, dependent
on changes in the business environment that may adversely
affect operating profits or the value of assets in a specific country.
This risk includes
Political risk
Exchange rate risk
Economic risk
Sovereign risk
Transfer risk
etc.
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Country riskThis risk varies from one country to another. Some countries
have high enough risk to discourage much foreign
investment.
Risk of capital being locked up.
Can reduce expected rate of returns and must be taken
under consideration when investing abroad.
Country risk is higher with longer term investments and
direct investments, which are investments not made
through a regulated market or exchange.
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Sources of country risk
Macro Risk
Affects all firms in the host country.
Micro Risk
Specific to an industry, firm or project in a country.
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Country Risk RatingsRank Country Pre-crisis score Sept 2011 score
1 Indonesia 73.2 58.2
2 Greece 82.7 40.6
3 Malaysia 84.5 66.6
4 Russia 50.7 56.95 Ireland 92.4 60.8
6 Argentina 53.8 43.7
7 Thailand 82.1 61.7
8 South Korea 85.0 73.3
9 Portugal 83.0 55.9
10 Spain 86.6 66.0
Source: Euromoney Country risk September 2011
Score out of 100
http://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Greecehttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Irelandhttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Portugalhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Portugalhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Irelandhttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Greecehttp://en.wikipedia.org/wiki/Indonesia -
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Reliable rating agencies
International Monetary Fund
The World Bank
Standard`s & Poor`s
Moody`s
Economist Intelligence Unit
Political Risk Services
Business Environmental Risk Intelligence
Control Risks information services International banks and other institutions
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Strategies for managing
the country risk
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1. Negotiate the environment with host country
The investment environment
o Taxes
o Labor issues
o Concessions
o Obligations and restrictions
o International arbitration of disputes
The financial environment
o Cash flow remittance
o Access to capital market
o Subsidize financing
o Corporate governance environment.
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2. Structure foreign operations to minimizecountry risk while maximizing returns
Limit the scope of technology transfer to foreign affiliates to include only
non- essential parts of the production process.
Limit dependence on the single partner.
Enlist local partners.
Use more stringent investment criterion.
Plan for disaster recovery.
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3. Obtain political risk insurance
Insurable risk`s are
Loss is identifiable in time, place, cause and amount.
A large number of individuals or business are exposed to risks.
The expected loss over the life of contract is estimable, so that
reasonable premiums can be set by the insurer.
Loss is outside the influence of the insured.
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