Midterm is in two weeks - next week talk about exam - review. Document on Angel - outlines all of the key learning on the chapters.
Country risk analysis - Try to find the factors used to measure country risk - Country risk is the potentially adverse impact of a country environment on an Mac's cash flows. An NC conducts country risk analysis when it applies capital budgeting to determine whether to implement a new project in a particular country or to continue conducting business in a particular country.Political Risk Characteristics 1 . Attitude of consumers in the host country - a tendency of residents to purchase only locally produced goods. Japan - cannot ship rice into Japan - high tariffs - Switzerland - high quality reputation - 2. Actions of the host government - A host government might impose pollution control standards and additional corporate taxes, as well as withholding taxes and fund transfer restrictions.
Can encourage or discourage investment - can be corrupt - raising the risk of doing any type of business in that country.What is the best way to tell what a gobo will do - by what they have done in the past - what are they doing right now? . Blockage of fund transfers - A host government may block fund transfers, which could force subsidiaries to undertake projects that are not optimal Oust to make use of the funds). 4. Currency inconvertibility - Some governments do not allow the home currency to be exchanged into other currencies.
5. War - Conflicts with neighboring countries or internal turmoil can affect the safety of employees hired by an Mac's subsidiary or by salespeople who attempt to establish export markets for the NC 6.Inefficient bureaucracy - Bureaucracy can delay an Mac's efforts to establish a new subsidiary or expand business in a country. .
Corruption - Corruption can occur at the firm level or with firm-government interactions. Transparency International has derived a corruption index for most countries (see wry. Transparency. Org).
Are ways to get around this but it is very difficult. Higher rating lower corruption. 6 and 7 go hand in hand - hard to break down the system when it is inefficient and corrupt. Financial Risk Characteristics Economic Growth is influenced by: 1 .Interest rates: higher interest rates tend to slow growth and reduce demand for NC products 2. Exchange rates: strong currency may reduce demand for the amounts exports, increase volume of imports, and reduce production and national income.
3. Inflation: inflation can affect consumers' purchasing power and their demand for NC goods. Measuring country risk: 1 . Macro-assessment of country risk represents an overall risk assessment of a country and considers all variables that affect country risk except those that are firm- specific.
For paper do a macro assessment. 2. Micro-assessment of country risk involves assessment of a country as it relates to the Mac's type of business. My specific business Blades case from chapter 16 - due 6 pm 3/12/13 Higher the number - the more the risk - if you range from 1 -5 5 meaner high risk. Governance AT ten country RISK Assessment 1 .
Mans need a proper governance system to ensure that managers fully consider country risk when assessing potential projects. 2.One solution is to require that major long-term projects use input from an external source (such as a consulting firm) regarding the country risk assessment of a specific project and that this assessment be directly incorporated in the analysis of the project Incorporate risk in capital budget 1) Adjustment of the discount rate 2) Adjustment of the estimated cash flow ) Assessing risk of existing projects: review country risk Strategies to reduce exposure to a host government takeover include: 1 .Use a short- term horizon - try to get money out quicker - less time for government to react - reduces possibility that these risk factors will play out. 2.
Rely on unique supplies or technology - had relationship with customer - distribution network- 3. Hire local labor - put pressure on gobo to keep business there- 4. Borrow local funds - most gobos own or are connected to the banks - gobo takes over - walk away from debt - don't want you to fail need to repay loans 5. Purchase insurance - 6. Use project finance - different types of project finance.Loans paid back based on revenues from the business.
All lenders dependent on getting paid back by the company operating. Risk vs. return - if we use a system of determining risk of a well defined policy -we will come up with a measure of risk where we say that countries with low risk we don't need to get as much return out of as high risk - Discount rate - what is our return expectation - goes up with the risk that we are taking on. Identify the risks - figure out a way to describe them are the ideas to manage the risk - country paper. - think about the risks and what
