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Country risk analysis

1. Should the types of investment become critical factors determining which economic and socio-political indicators are included in a specific country risk analysis?
2. Are windows of opportunity for investment in any given market a valid reason for MNCs to secure market access in those markets?
3. What is the relation between expected returns and country-risk measures?
4. What is the impact of country risk on international bank lending?
5. Which economic indicators identify debt servicing difficulties?
6. How does globalization affect investment strategies of the G8 countries?
7. How do I identify the strengths and weaknesses of the new market, as well as the potential threats?

Solution Preview

1. Should the types of investment become critical factors determining which economic and socio-political indicators are included in a specific country risk analysis?

Yes, the level and type of investment does affect the choice of indicators in a country risk analysis. For example, let's say that a MNC only plans to export products to a certain country rather than setting up an offshore subsidiary or joint venture in the particular country. Thus, in this case, the company's level of commitment of investment will be very less as compared to situations where it plans to open its offshore subsidiary or joint venture project in the country which requires substantial capital outlay. In the first instance, the company will need not worry about issues such as tax benefits for setting up operations, repatriation related clauses, taxation,etc. as it is not setting up operations in the country and is just exporting the products to that country. However, when it sets up operations as a wholly owned subsidiary or joint venture, it needs to analyze whole lot of economic and social factors such as attitude of the government in terms of tax polices, repatriation clauses, subsidies and grants, etc.

Thus, it is apparent that the choice of investment strategy to enter a new country does impact the choice of critical factors in the country risk analysis.

2. Are windows of opportunity for investment in any given market a valid reason for MNCs to secure market access in those markets?

Attractive windows of opportunity for investment in any given market is indeed a valid reason to secure market access in those markets. However, the decision to explore such attractive markets should be made only after conducting an indepth country risk analysis of the proposed market. In other words, even though a market might appear attractive in terms of opportunities, it may not always be a prudent decision to go ahead with investments in such markets due to host of other negative factors such as weak political situation, unfavorable currency rate movements,etc. Thus, such decisions should always be accompanied by indepth country risk analysis in order to ascertain the "real attractiveness" or "opportunity" from all perspectives.

3. What is the relation between expected returns and country-risk measures?

All business transactions involve some degree of risk, but when such transactions occur across ...

Solution Summary

Should the types of investment become critical factors determining which economic and socio-political indicators are included in a specific country risk analysis?

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