International companies face multiple types of risk. Discuss the impact of the following types of risk on a multinational company:
- Currency exchange risk
- Expropriation/extortion risk
- Terrorism risk
- Global economic risk
- Foreign taxes and regulation risk
Currency exchange risk: International companies that either buy or sell goods/services from other countries, or are engaged in international transactions including more than one currency, are subject to exchange rate related risks because exchange rates between two currencies are always fluctuating. Adverse movements in exchange rates can result in significant losses for international companies as the amount that they expect to receive from sales or amounts that they expect to pay for purchasing can decrease or increase respectively due to adverse exchange rate movements. Hence, international companies have to use hedging tools to mitigate risks arising due to adverse exchange rate movements.
Expropriation/extortion risk: International companies face expropriation or extortion-related risks because of their operation in countries where crime rate is high, or law and order is in weak shape due to political or other crises. In such a scenario, the international companies face extortion-related risk from local criminals or mafias, ...
This solution discusses risk factors for international companies in 620 words.
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?