Share
Explore BrainMass

identified risks and the tools

Using information from the internet, or other sources, identify and research at least three risks facing organizations engaged in international finance activities. Base on your research; describe the identified risks and the tools that organizations could use to mitigate these risks.Make sure you use APA guidelines and format

Be sure to properly cite any references used.

Solution Preview

Risk is the uncertainty that you may not earn your expected return on your investments. For example, you may expect to earn 20% on your stock mutual fund every year. But your actual rate of return may be much lower. Multinational firms must constantly assess the business environments of the countries they are already operating in as well as the ones they are considering investing in. One of the most important international risks, which an organization faces, is exchange rate risk.

Exchange Rate Risk
Organization which invest internationally in today's increasingly global investment arena face the prospect of uncertainty in the returns after they convert the foreign gains back to their own currency. Unlike the past when most U.S. investors ignored international investing alternatives, investors today must recognize and understand exchange rate risk, which can be defined as the variability in returns on securities caused by currency fluctuations. Exchange rate risk is sometimes called currency risk.

Moreover firms must constantly assess the business environments of the countries they are already operating in as well as the ones they are considering investing in.

It involves country risk analysis, the assessment of the potential risks and rewards associated with making investments and doing business in a country. This is the subject matter of political economy?the interaction of politics and economics. Such interactions occur on a continuous basis and affect not just monetary and fiscal (tax and spending) policies but also a host of other policies that affect the business environment, such as currency or trade controls, changes in labor laws, regulatory restrictions, and requirements for additional local production.

By extension, the international economic environment is heavily dependent on the policies that individual nations pursue. Given the close linkage between a country's economic policies and the degree of exchange risk, inflation risk, and interest rate risk that multinational companies and investors face, it is vital in studying and attempting to forecast those risks to understand their causes.

There can be various Country-Specific Risks.

It affect both domestic and foreign firms that reside in a host country. These risks, which arise from the actions of the host government, apply more to the multinational corporation whose cash flows are impacted. Examples include exchange controls, currency inconvertibility, and blockage of funds.

Exchange Controls
A common policy of host governments facing balance-of-payments difficulties is to impose exchange controls that block the transfer of funds to nonresidents.

Currency Inconvertibility
Some governments will not permit conversion of the local currency into another currency

Blockage of Funds
Subsidiaries of MNCs typically send funds back to their parents to repay intercompany loans, remit dividends, and pay for supplies and other administrative services. When host governments experience a foreign exchange shortage, they may block the transfer of funds back to the parent.

Credit Risks:
Credit risk arises due to lack of knowledge and credit knowledge about the other party in foreign country.

Action Plan to deal with risk

1. Country Diversification
They can diversify their suppliers to reduce their exposure to ...

Solution Summary

This job notes identified risks and the tools.

$2.19