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Political risk

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R. Douglas is the chief financial officer of a small U.S. firm thinking of undertaking its first foreign investment. The project is in a developing country, and he is concerned about political risk. How would he go about assessing the political risk? If the firm undertakes the project, how would he manage political risk (before any incidents occur)? If the firm undertakes the project and a political incident occurs, how would he manage the incident?

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Political risk and managing the incident is discussed in the solution.

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He can assess the political risk by analyzing the current government's attitude towards foreign owned companies. He should also analyze the current export- import policies and laws regarding repatriation, etc. He should also take update on the ongoing debates, concerns about foreign investment in the country.

He should also take note of activities which could trigger political instability in the country such as terrorism, etc.

To manage the political risks and the changes associated with it, the CFO should ...

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