Ch16CountryRiskAnalysis國際金融管理山東大學-秦

Ch16CountryRiskAnalysis(國際金融管理-山東大學,秦2024/3/26Ch16CountryRiskAnalysis(國際金融管理山東大學,秦ChapterObjectivesToidentifythecommonfactors usedbyMNCstomeasureacountry’spoliticalriskandfinancialrisk;Toexplainthetechniquesusedtomeasurecountryrisk;andToexplainhowtheassessmentofcountryriskisusedbyMNCswhenmakingfinancialdecisions.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦CountryRiskAnalysisCountryriskrepresentsthepotentiallyadverseimpactofacountry’senvironmentontheMNC’scashflows.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦CountryRiskAnalysisCountryriskcanbeused:tomonitorcountrieswheretheMNCispresentlydoingbusiness;asascreeningdevicetoavoidconductingbusinessincountrieswithexcessiverisk;andtoimprovetheanalysisusedinmakinglong-terminvestmentorfinancingdecisions.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦PoliticalRiskFactorsAttitudeofConsumersintheHostCountrySomeconsumersmaybeveryloyaltohomemadeproducts.AttitudeofHostGovernmentThehostgovernmentmayimposespecialrequirementsortaxes,restrictfundtransfers,subsidizelocalfirms,orfailtoenforcecopyrightlaws.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦PoliticalRiskFactorsBlockageofFundTransfersFundsthatareblockedmaynotbeoptimallyused.CurrencyInconvertibilityTheMNCparentmayneedtoexchangeearningsforgoods.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦WarInternalandexternalbattles,oreventhethreatofwar,canhavedevastatingeffects.BureaucracyBureaucracycancomplicatebusinesses.CorruptionCorruptioncanincreasethecostofconductingbusinessorreducerevenue.PoliticalRiskFactorsCh16CountryRiskAnalysis(國際金融管理山東大學,秦CorruptionPerceptionsIndexTheindex,whichispublishedbyTransparencyInternational,reflectsthedegreetowhichcorruptionisperceivedtoexistamongpublicofficialsandpoliticians.In2001,91countriesarerankedonacleanscoreof10.RankCountryScore 1 Finland 9.9 3 NewZealand 9.4 4 Singapore 9.2 7 Canada 8.9 13 U.K. 8.3 14 HongKong 7.9 16 Israel 7.6 16 U.S.A. 7.6 18 Chile 7.5 20 Germany 7.4 21 Japan 7.1RankCountryScore 23 France 6.7 26 Botswana 6.0 27 Taiwan 5.9 38 SouthAfrica 4.8 42 SouthKorea 4.2 46 Brazil 4.0 51 Mexico 3.7 57 Argentina 3.5 57 China 3.5 79 Russia 2.3 88 Indonesia 1.9Ch16CountryRiskAnalysis(國際金融管理山東大學,秦FindoutmoreaboutTransparencyInternationalandtheCorruptionPerceptionsIndexbyvisiting/documents/cpi/2001/cpi2001.html.OnlineApplicationCh16CountryRiskAnalysis(國際金融管理山東大學,秦FinancialRiskFactorsCurrentandPotentialStateoftheCountry’sEconomyArecessioncanseverelyreducedemand.FinancialdistresscanalsocausethegovernmenttorestrictMNCoperations.IndicatorsofEconomicGrowthAcountry’seconomicgrowthisdependentonseveralfinancialfactors-interestrates,exchangerates,inflation,etc.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦Whatarethepoliticalandfinancialoutlookforvariouscountries?OnlineApplicationConsulttheCountryCommercialGuidespreparedbyembassystaffat/website/ccg.nsf/ccghomepage?openform.RefertotheCIA’sWorldFactbookat/.Visit/ifc/Ch16CountryRiskAnalysis(國際金融管理山東大學,秦TypesofCountryRiskAssessmentAmacro-assessmentofcountryriskisanoverallriskassessmentofacountrywithoutconsiderationoftheMNC’sbusiness.Amicro-assessmentofcountryriskistheriskassessmentofacountryasrelatedtotheMNC’stypeofbusiness.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦TypesofCountryRiskAssessmentTheoverallassessmentofcountryriskthusconsistsof:Macro-politicalriskMacro-financialriskMicro-politicalriskMicro-financialriskCh16CountryRiskAnalysis(國際金融管理山東大學,秦Notethattheopinionsofdifferentriskassessorsoftendifferduetosubjectivitiesin:identifyingtherelevantpoliticalandfinancialfactors,determiningtherelativeimportanceofeachfactor,andpredictingthevaluesoffactorsthatcannotbemeasuredobjectively.TypesofCountryRiskAssessmentCh16CountryRiskAnalysis(國際金融管理山東大學,秦Techniquesof

AssessingCountryRiskAchecklistapproachinvolvesratingandweightingalltheidentifiedfactors,andthenconsolidatingtheratesandweightstoproduceanoverallassessment.TheDelphitechniqueinvolvescollectingvariousindependentopinionsandthenaveragingandmeasuringthedispersionofthoseopinions.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦Techniquesof

AssessingCountryRiskQuantitativeanalysistechniqueslikeregressionanalysiscanbeappliedtohistoricaldatatoassessthesensitivityofabusinesstovariousriskfactors.Inspectionvisitsinvolvetravelingtoacountryandmeetingwithgovernmentofficials,firmexecutives,and/orconsumerstoclarifyuncertainties.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦Often,firmsuseavarietyoftechniquesformakingcountryriskassessments.Forexample,theymayuseachecklistapproachtodevelopanoverallcountryriskrating,andsomeoftheothertechniquestoassignratingstothefactorsconsidered.Techniquesof

AssessingCountryRiskCh16CountryRiskAnalysis(國際金融管理山東大學,秦DevelopingACountryRiskRatingAchecklistapproachwillrequirethefollowingsteps:Assignvaluesandweightstothepoliticalriskfactors.Multiplythefactorvalueswiththeirrespectiveweights,andsumuptogivethepoliticalriskrating.Derivethefinancialriskratingsimilarly.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦DevelopingACountryRiskRatingMultiplytheratingswiththeirrespectiveweights,andsumuptogivetheoverallcountryriskrating.Assignweightstothepoliticalandfinancialratingsaccordingtotheirperceivedimportance.Achecklistapproachwillrequirethefollowingsteps:Ch16CountryRiskAnalysis(國際金融管理山東大學,秦DevelopingACountryRiskRatingDifferentcountryriskassessorshavetheirownindividualproceduresforquantifyingcountryrisk.Althoughmostproceduresinvolveratingandweightingindividualriskfactors,thenumber,type,rating,andweightingofthefactorswillvarywiththecountrybeingassessed,aswellasthetypeofcorporateoperationsbeingplanned.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦DevelopingACountryRiskRatingFirmsmayusecountryriskratingswhenscreeningpotentialprojects,orwhenmonitoringexistingprojects.Forexample,decisionsregardingsubsidiaryexpansion,fundtransferstotheparent,andsourcesoffinancing,canallbeaffectedbychangesinthecountryriskrating.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦ComparingRiskRatings

AmongCountriesOneapproachtocomparingpoliticalandfinancialratingsamongcountriesistheforeigninvestmentriskmatrix(FIRM

).Thematrixmeasuresfinancial(oreconomic)riskononeaxisandpoliticalriskontheotheraxis.Eachcountrycanbepositionedonthematrixbasedonitspoliticalandfinancialratings.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦UnclearZoneAcceptableZoneUnacceptableZoneFinancialRiskRatingPoliticalRiskRatingAcceptableUnacceptableStableUnstableTheForeignInvestmentRiskMatrix(FIRM)Ch16CountryRiskAnalysis(國際金融管理山東大學,秦ActualCountryRiskRatingsAcrossCountriesSomecountriesareratedhigheraccordingtosomeriskfactors,butloweraccordingtoothers.Onthewhole,industrializedcountriestendtoberatedhighly,whileemergingcountriestendtohavelowerriskratings.Countryriskratingschangeovertimeinresponsetochangesintheriskfactors.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦/data/wdi2001/pdfs/tab5_2.pdf/icrg/icrg.html///moodys/cust/loadBusLine.asp?busLine=sovereign/OnlineApplicationHowriskyisyourcountry?Lookup:Ch16CountryRiskAnalysis(國際金融管理山東大學,秦IncorporatingCountryRiskinCapitalBudgetingIftheriskratingofacountryisintheacceptablezone,theprojectsrelatedtothatcountrydeservefurtherconsideration.Countryriskcanbeincorporatedintothecapitalbudgetinganalysisofaprojectbyadjustingthediscountrate,orbyadjustingtheestimatedcashflows.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦AdjustmentoftheDiscountRateThehighertheperceivedrisk,thehigherthediscountratethatshouldbeappliedtotheproject’scashflows.AdjustmentoftheEstimatedCashFlowsByestimatinghowthecashflowscouldbeaffectedbyeachformofrisk,theMNCcandeterminetheprobabilitydistributionofthenetpresentvalueoftheproject.IncorporatingCountryRiskinCapitalBudgetingCh16CountryRiskAnalysis(國際金融管理山東大學,秦Applicationsof

CountryRiskAnalysisAlertedbyitsriskassessor,GulfOilplannedtodealwiththelossofIranianoil,andwasabletoavoidmajorlosseswhentheShahofIranfellfourmonthslater.However,whiletheriskassessmentofacountrycanbeuseful,itcannotalwaysdetectupcomingcrises.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦Applicationsof

CountryRiskAnalysisIraq’sinvasionofKuwaitwasdifficulttoforecast,forexample.Nevertheless,manyMNCspromptlyreassessedtheirexposuretocountryriskandrevisedtheiroperations.The1997-98AsiancrisisalsoshowedthatMNCshadunderestimatedthepotentialfinancialproblemsthatcouldoccurinthehigh-growthAsiancountries.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦OnlineApplicationFormoreinformationontheAsiancrisis,checkoutthefollowingsites:/~nroubini/asia/AsiaHomepage.html/navigat/english/asienhau.htmCh16CountryRiskAnalysis(國際金融管理山東大學,秦ReducingExposure

toHostGovernmentTakeoversThebenefitsofDFIcanbeoffsetbycountryrisk,themostsevereofwhichisahostgovernmenttakeover.Toreducethechanceofatakeoverbythehostgovernment,firmsoftenusethefollowingstrategies:UseaShort-TermHorizonThistechniqueconcentratesonrecoveringcashflowquickly.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦ReducingExposure

toHostGovernmentTakeoversRelyonUniqueSuppliesorTechnologyInthisway,thehostgovernmentwillnotbeabletotakeoverandoperatethesubsidiarysuccessfully.HireLocalLaborThelocalemployeescanapplypressureontheirgovernment.Ch16CountryRiskAnalysis(國際金融管理山東大學,秦BorrowLocalFundsThelocalbankscanapplypressureontheirgovernment.PurchaseInsuranceInvestmentguaranteeprogramsofferedbythehomecountry,hostcountry,oraninternationalagencyinsuretosomeextentvariousformsofcountryrisk.ReducingExposure

toHostGovernmentTakeoversCh16CountryRiskAnalysis(國際金融管理山東大學,秦TheU.S.governmentprovidesinvestmentinsurancethroughtheOverseasPrivateInvestmentCorporation(OPIC).VisittheOPICat/.TheWorldBank’sMultilateralInvestmentGuaranteeAgency(M

IGA)offerspoliticalriskinsurancetoinvestorsinemergingeconomies.VisittheM

IGAat.OnlineApplicationCh16CountryRiskAnalysis(國際金融管理山東大學,秦ImpactofCountryRiskonanMNC’sValue E(CFj,t) = expectedcashflowsincurrencyjtobereceivedbytheU.S.parentattheendofperiodt E(ERj,t) = expectedexchangerateatwhichcurrencyjcanbeconvertedtodollarsattheendofperiodt k = weightedaveragecostofcapitaloftheparentExposureofForeignProjectstoCountryRisksCh16CountryRiskAnalysis(國際金融管理山東大學,秦WhyCountryRiskAnalysisIsImportan