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Variables in risk, budget deficits & inflation

1. Which are the three most important variables that determine the level of country risk?
2. Which of the following three variables has the strongest impact on a country risk analysis: nationalism, religious fundamentalism, or political system? Please explain to me.
3. When is country risk analysis a critical factor for a business going global?
4. How should country risk affect global strategies?
5. Compare and contrast the methodologies used by two of the major providers of risk analysis data.
6. What are the roles of central bank independence and financial market development in budget deficits and inflation?

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Kindly check the attachment.1. Which are the three most important variables that determine the level of country risk?

The three most important variables that determine the level of country risk are political risk, economic risk and financial risk. Political risk covers areas such as political stability of the country, as determined by stability of the government, level of corruption, terrorism,etc.

The overall aim of the Economic Risk is to provide a means of assessing a country's current economic strengths and weaknesses. In general terms where its strengths outweigh its weaknesses it will present a low economic risk and where its weaknesses outweigh its strengths it will present a high economic risk.

The overall aim of the Financial Risk is to provide a means of assessing a country's ability to pay its way. In essence, this requires a system of measuring a country's ability to finance its official, commercial, and trade debt obligations. It also covers areas such as exchange rate stability,etc.

source: http://www.icrgonline.com/page.aspx?page=icrgmethods

2. Which of the following three variables has the strongest impact on a country risk analysis: nationalism, religious fundamentalism, or political system? Please explain to me.

In my opinion, the political system has the strongest impact on the country risk analysis in the sense that the current political system governing any country has a strong impact on factors such as stability of the government and its ability to carry out legislations, reforms, stated programs and stay in office. Further, the political system is the one that determines the attitude of the government towards foreign owned entities and businesses and the helps in determining the current state of foreign investment, export-import and other related laws. It also determines the benefits and advantages provided by the government in the form of subsidies,etc. to foreign businesses in the country.

Further, political system has long standing impact on the relations of the country with other countries. The analysis of the political system highlight various aspects such as law and order situation, level of corruption, bureaucratic scenario,etc.

Thus, the analyis of political system is extremely important in the country risk analysis.

3. When is country risk analysis a critical factor for a business going global?

Country risk analysis is extremely important for a business going global because each country is unique and provides different kind of opportunities and threats. Thus, it becomes imperative for companies planning to invest or expand in new countries to conduct such analysis in order to make it sure that they totally understand the new market and have put all the requisite measures in place to avoid risk and failure. Failure in terms of understanding new markets and countries can result in signifant losses for global companies. Country risk analysis prepare companies to handle all kinds of risks arising due to ...

Solution Summary

Which are the three most important variables that determine the level of country risk?

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