INTERNATIONAL ASPECTS OF
FINANCIAL MANAGEMENT
POLITICAL RISK
Report by
Lesly Anne Lising
WHAT IS POLITICAL RISK?
Risk of changes in value owning to political actions in the
foreign country.
Political Risk of a M...
Assessing Political Risk
Certain developing countries give foreign companies
concessions to invest such that they may have...
Cont. Assessing Political Risk
 How efficient is the government in processing
request?
 How much inflation and economic ...
Political Risk Classification
Firm Specific Risk
(Micro Risk)
Governance Risk
due to goal conflict
between an MNC and its ...
Country Specific Risk
(Macro Risk
Transfer risk
concerns mainly the
problem of
blocked funds
Cultural and
Institutional Ri...
Cont. Political Risk
Classification
Global Specific Risk
political risks that affect the MNE at the project or
corporate l...
2015 Political Risk Landscape by
Marsh Risk Management Research
Briefing
Political Risk Map 2015: Geopolitical Tensions an...
2015 Political Risk Landscape by
Marsh Risk Management Research
 Falling oil prices.
 Divergence among emerging economie...
Reducing Political Risk
A company investing in a foreign country should
take this steps to protect itself.
 Cooperating w...
Political Risk Insurance
Public authorities in several countries for insuring the
risk inherent in foreign operations.
 E...
Political Insurance Sample
USA-OPIC (Overseas Private Investment
Corporation)
Types of Coverage
OPIC offers several types ...
The END
of 13

International Financial Management Political Risk

For Financial Management II MBA
Published on: Mar 4, 2016
Published in: Economy & Finance      
Source: www.slideshare.net


Transcripts - International Financial Management Political Risk

  • 1. INTERNATIONAL ASPECTS OF FINANCIAL MANAGEMENT POLITICAL RISK Report by Lesly Anne Lising
  • 2. WHAT IS POLITICAL RISK? Risk of changes in value owning to political actions in the foreign country. Political Risk of a Multinational Company such as; • Laws that specify minimum percentage of nationals who must be employed in various positions • Required investment n environmental and social projects • Restrictions on the convertibility of currencies • Discriminatory practices ( higher taxes , higher utility charges and requirement to pay higher wages) • Expropriation-The taking of private property for public use or in the public interest
  • 3. Assessing Political Risk Certain developing countries give foreign companies concessions to invest such that they may have more favourable cost that a domestic company Political risk has a serious influence on the overall risk of an investment project , it must be realistically assessed.  How stable is the host government?  What are the prevailing political winds?  What is likely to be a new governments view of foreign investment?
  • 4. Cont. Assessing Political Risk  How efficient is the government in processing request?  How much inflation and economic stability are there?  How strong and equitable are the courts?
  • 5. Political Risk Classification Firm Specific Risk (Micro Risk) Governance Risk due to goal conflict between an MNC and its host government
  • 6. Country Specific Risk (Macro Risk Transfer risk concerns mainly the problem of blocked funds Cultural and Institutional Risk *Ownership structure *Human resource norms *Religious heritage *Nepotism and corruption *Intellectual property rights *Protectionism Cont. Political Risk Classification
  • 7. Cont. Political Risk Classification Global Specific Risk political risks that affect the MNE at the project or corporate level but originate at the global level. Examples are *terrorism *anti-globalization movement *environmental concerns *poverty *cyberattacks
  • 8. 2015 Political Risk Landscape by Marsh Risk Management Research Briefing Political Risk Map 2015: Geopolitical Tensions and Falling Oil Prices Challenge Foreign Investors Published: 19-Dec- 2014 Geopolitical tensions, falling commodity prices, separatist movements, and more are shaping today’s political risk landscape. There is a clear divide between healthy emerging markets and those that represent poor investments for foreign investors, according to the Marsh Political Risk Map 2015. Drawing on data from Business Monitor International (BMI), a leading source of independent political and credit risk analysis, the map includes overall risk scores for 185 countries based on political risk Several of the major factors that drove the political risk environment in 2014 as well as those that will likely continue into 2015, including:
  • 9. 2015 Political Risk Landscape by Marsh Risk Management Research  Falling oil prices.  Divergence among emerging economies that represent strong investment opportunities versus those that do not.  Political violence beyond the Middle East and North Africa.  Autonomy and separatist movements.  Greater global conflict.  Social media  State-sponsored cyber-attacks. *http://asia.marsh.com/CountrySites/Philippines/MRMR/ID/43385/ Political-Risk-Map-2015-Geopolitical-Tensions-and-Falling-Oil- Prices-Challenge-Foreign-Investors.aspx
  • 10. Reducing Political Risk A company investing in a foreign country should take this steps to protect itself.  Cooperating with the host country in hiring local nationals  Making the right types of investment  Acting responsibly  Joint venture with a company in the host country  Making the subsidiary dependent on the parent for technology , markets and/or supplies  Getting political risk insurance
  • 11. Political Risk Insurance Public authorities in several countries for insuring the risk inherent in foreign operations.  England-ECGD (Export Credit Guarantee Department)  France- COFACE ( Companies Françoise d’ Assurances pour le commerce Exterieure), provide upto 95% against political risks arising out of wars & nationalization & BFCE (Banque Francchisee due Commerce Exterior).  USA- Export-Import Bank (EXIM Bank)  Germany- Hermes-Kredit-Versicherungs- Aktiongesellschaft.  Japan- Ministry of International Trade & Industry (MTTI).  Italy- Institute Nazionale delle Assicurazioni. Private Insurance:- Llyod of London, New Hampshire Company & Company Beige d’ Assurance Credit
  • 12. Political Insurance Sample USA-OPIC (Overseas Private Investment Corporation) Types of Coverage OPIC offers several types of political risk coverage: Currency Inconvertibility, Expropriation, Political Violence and more targeted specialty products. •Currency Inconvertability •Expropriation and Other Forms of Unlawful Government Interference •Regulatory Risk •Political Violence •Specialty Products *http://www.opic.gov/what-we-offer/political-risk-insurance
  • 13. The END

Related Documents