ch06_2 - Multinational Financial Management Alan Shapiro...

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Multinational Financial Management Alan Shapiro 9 th Edition Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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Country Risk Analysis CHAPTER 6
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THE MEASUREMENT OF POLITICAL RISK I. MEASURING POLITICAL RISK A. Country-specific perspective focuses on the country from a “top-down” view, i.e. macroeconomic variables to industry-specific analysis 3
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THE MEASUREMENT OF POLITICAL RISK B. Political Stability 1. Measured by: a. Frequency of government changes b. Level of violence c. Number of armed insurrections d. Conflict with other states 4
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THE MEASUREMENT OF POLITICAL RISK C. Economic Factors 1. Indicators of political unrest a. Rampant inflation b. Balance of payment deficits c. Slowed growth of per capita GDP 5
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THE MEASUREMENT OF POLITICAL RISK D. Subjective Factors 1. Profit Opportunity --the country’s attitude toward private enterprise: whether private enterprise is considered a necessary evil to be eliminated as soon as possible or whether it is actively welcomed 6
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1. Political Risk and Uncertain Property Rights --the government can expropriate either legal title to property or the stream it generates --property owners may be constrained in the way they use their property
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THE MEASUREMENT OF POLITICAL RISK 3. Capital Flight a. Definition: the export of savings by a nation’s citizens because of safety-of-capital fears. 8
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a. Measurement: use the balance-of- payment account --the entry labeled “errors and omissions” --World Bank measurement “the sum of gross capital inflows and the current account deficit, less increases in foreign reserves”
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THE MEASUREMENT OF POLITICAL RISK c. Causes of capital flight 1.) Inappropriate economic policies Government regulations, controls and taxes that lower the return on domestic investments 10
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2.) Expectation of devaluation
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This note was uploaded on 01/24/2011 for the course FINS 5516 taught by Professor A during the Three '10 term at University of New South Wales.

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ch06_2 - Multinational Financial Management Alan Shapiro...

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