+ All Categories
Transcript
Page 1: Country Risk Analysis PPT SecD Group10

Country Risk Analysis

Page 2: Country Risk Analysis PPT SecD Group10

Definition

Country Risk Analysis is assessment of potential risks and rewards from doing business in country

Country risk represents potentially adverse impact of a country’s environment on the cash flow of the firm

Page 3: Country Risk Analysis PPT SecD Group10

Risk perception

Sovereign risk applies specifically to the creditworthiness of governments as borrowers

Political risk refers to political factors that might impair a borrower’s ability to pay

Page 4: Country Risk Analysis PPT SecD Group10

Importance

Used to monitor countries where the firm is presently engaged in international business

Used by the firm as a screening device to avoid countries with excessive risk

Used to assess particular forms of risk for a proposed project considered for a foreign country

Page 5: Country Risk Analysis PPT SecD Group10

Awareness of Country Risk

Crisis in Mexico 1982 Crisis in China in 1989 1997 East Asian Currency crisis Crisis in Iraq Crisis in Iran, Afghanistan Recent sub-prime crisis starting in USA

Page 6: Country Risk Analysis PPT SecD Group10

Factors

Political

Economic Condition

s

Subjective

Financial

04/08/2023Country Risk Analysis 6

Page 7: Country Risk Analysis PPT SecD Group10

Political Risk Factors

Attitude of host government War Currency inconvertibility Bureaucracy Blockage of fund transfers Corruption

04/08/2023Country Risk Analysis 7

Page 8: Country Risk Analysis PPT SecD Group10

Financial Risk Factors

Current and potential state of the country’s economy

Financial distress Additional host government restrictions Moratorium on fund transfer Interest rates, exchange rates and

inflation

04/08/2023Country Risk Analysis 8

Page 9: Country Risk Analysis PPT SecD Group10

Economic Conditions

Diversification of the economy Degree of reliance on a few key exports

and the effects of a decline in the worldwide prices of those exports

Exchange rate devaluation Frequency of government intervention

in the money market and the ceilings of interest rates

Possibility of recession04/08/2023Country Risk Analysis 9

Page 10: Country Risk Analysis PPT SecD Group10

Subjective factors

Country’s attitude towards private enterprise

Risk of currency devaluation Risk of government`s income reduction External flows dependence, Productivity restrictions Social pressures Attitude of consumers in the host

country04/08/2023Country Risk Analysis 10

Page 11: Country Risk Analysis PPT SecD Group10

Types of Country Risk Assessment

Macro-assessment of country risk

Country characteristics that affect profits

Micro-assessment of country risk

04/08/2023Country Risk Analysis 11

Page 12: Country Risk Analysis PPT SecD Group10

Use of country risk assessment

Incorporating country risk in capital budgeting

Adjustment of the discount rate

Adjustment of the estimated cash flows

Application of country risk analysis

12

Page 13: Country Risk Analysis PPT SecD Group10

Indicators of high country risk

Large government deficit relative to GNP High rate of money expansion Substantial government spending yielding low rate of

return High taxes Vast state-owned firms Attitude that government’s role is to maintain living

standards Pervasive corruption Absence of basic government institutions almost all are common for the developing countries!!!!!!

04/08/2023Country Risk Analysis 13

Page 14: Country Risk Analysis PPT SecD Group10

Measurement of Country Risk

One way to measure Country Risk is checklist approach, and it involves: Assigning values and weights to political and financial

risk factors, Multiplying the factor values with their weights, and

summing up to give the political and financial risk ratings,

Assigning weights to the risk ratings, and Multiplying the ratings with their weights, and summing

up to give the country risk rating

04/08/2023Country Risk Analysis 14

Page 15: Country Risk Analysis PPT SecD Group10

Country Risk Measurement

04/08/2023Country Risk Analysis 15

Page 16: Country Risk Analysis PPT SecD Group10

Derivation of Country Risk

04/08/2023Country Risk Analysis 16

Page 17: Country Risk Analysis PPT SecD Group10

Comparing Risk Ratings An MNC may evaluate country risk for several

countries, perhaps to determine where to establish a subsidiary

Foreign investment risk matrix (FIRM) FIRM is used to develop a matrix that categorizes

countries based on political risk and economic risk as Acceptable Unacceptable Uncertain for investment

The importance of political risk versus economic risk varies with the intent of the MNC

04/08/2023Country Risk Analysis 17

Page 18: Country Risk Analysis PPT SecD Group10

FIRM2 dimensional mapping of Political risk component Economic risk component

How an MNC analyses risk Stage1 – Use FIRM - to eliminate risky countries Stage2 – Country risk profile Stage3 – Investment Risk analysis Stage4 – Foreign investment risk Audit

04/08/2023Country Risk Analysis 18

Page 19: Country Risk Analysis PPT SecD Group10

World Threat Perception - Terrorism

Terrorism has added a new dimension in the country risk assessment

Middle East› Iraq › Iran – nuclear ambition, internal consternation› Israel – Hamas-Israeli cycle of violence

Asia› Afghanistan – warlords back in the game, on their own side› Indonesia – Jemmah Islamia, Al-Qaeda’s kissing cousin› Philippines – domestic terrorists

04/08/2023Country Risk Analysis 19

Page 20: Country Risk Analysis PPT SecD Group10

Global Terrorism Index The Index is designed to assess the risk of terrorism in

each country, or against that country’s interests abroad, over the next 12 months

It does this by qualitatively rating five key factors for each country – Motivation, Presence, Scale, Efficacy and Prevention – and then giving each of these a quantitative weighting in order to determine its overall Terrorism Risk

20

Page 21: Country Risk Analysis PPT SecD Group10

04/08/2023Country Risk Analysis 21

Page 22: Country Risk Analysis PPT SecD Group10

Summary

Potential risk & rewards of doing business in a country

Factors› Political› Financial› Economic

Risk Assessment Measurement & comparison of country risk Terrorism

04/08/2023Country Risk Analysis 22

Page 23: Country Risk Analysis PPT SecD Group10

THANK YOU

Country Risk Analysis


Top Related