Political And Country Risk Essay

688 words - 3 pages

2. Identify common financial factors for an MNC to consider when assessing country risk. Briefly elaborate on how each factor can affect the risk to the MNC.
When considering assessing country risk, common financial factors such as interest rate, exchange rate, inflation, industry competition and industry growth are important elements that drive the country risk.
Interest rate: as a fact the money could be spent or saved, when interest rates are high, people tend to save more because of the benefits. Therefore, high interest rates discourage people to spend and that decreases the demand of the potential product offered by the MNC (Euromoney, n.d., & Madura, 2008 p. 486).
Exchange rate: if ...view middle of the document...

Actions of the host government: the host government can take actions such as expropriations, takeovers, environmental law, additional corporate tax, declaring the assets as public assets, supporting union strikes which ask for wages increases, creating exchange rate controls that are against remmitances.
Blockage of fund transfers: by being under foreign country rules, MNCs are subject to the government power of asking banks to froze accounts under auditing, delay authorizations regarding cash management, and deny remittances, transfer of funds, payments and settlements.
Currency inconvertibility: some governments establishes exchange controls which do not allow the home currency to be exchanged into other currencies (Madura, 2008 p.483).
War: wars are expensive (in money and other resources), destructive (of capital and human capital), and disruptive (of trade, resource availability, labor management). Large wars constitute severe shocks to the economies of participating countries by causing economics effects such as inflation and capital depletion, employees and facilities safety could be exposed. Also, long-term destruction and rebuilding generally impedes economic development and undermines prosperity (Goldstein, 2003)
Inefficient bureaucracy: more individuals...

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