Exhibit 162 determining the overall country risk

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Exhibit 16.2 – Determining the Overall Country Risk RatingExhibit 16.3 – Derivation of the Overall Country Risk Rating Based on Assumed Information Measuring Country Risk – Comparing Risk Ratings among Countries:
One approach to comparing political and financial ratings among countries is a foreign investment risk matrix (FIRM) that displays the financial (or economic) and political risk by intervals ranging across the matrix from “poor” to “good”oCountry Risk RatingsMNCs need to periodically update their assessments of each country where they do businessoImpact of the Credit CrisisMany countries experienced a decline in their country risk rating due to the credit crisis in 2008Countries especially reliant on internationally credit were adversely affected when credit was difficult to accessIncorporating Risk in Capital Budgeting:Adjustment of the discount rateoLower risk rating implies higher risk and higher discount rateAdjustment of the estimated cash flowsoAdjust estimates for the probability that cash flows may not be realizedAccounting for uncertaintyCould account for the uncertainty of country risk characteristics while also allowing for uncertainty in the other variables as wellIncorporating Risk in Capital Budgeting:Analysis of Existing ProjectsoAn MNC should not only consider country risk when assessing a new project but should also review the country risk periodically after a project has been implementedoIf an MNC has a subsidiary in a country that experiences adverse political conditions, it may need to reassess the feasibility of maintaining this subsidiary Prevent Host Government Takeovers:Strategies to reduce exposure to a host government takeover include:oUse a short-term horizonoRely on unique supplies or technology oHire local laboroBorrow local fundsoPurchase insuranceoUse project financeChapter 17 – Multinational Capital Structure and Cost of Capital:Components of Capital:An MNC’s parent may invest its own cash into the subsidiaryThe cash infusion in the subsidiary represents an equity investment by the parent, so that the parent is the sole owner of the subsidiaryThe subsidiary uses the cash infusion to develop its business operations in the host country
An alternative method by which the subsidiary can build more equity is to offer its own stock to the publicComponents of Capital:External Sources of DebtoDomestic Bond Offering - MNCs commonly engage in a domestic bond offering intheir home country in which the funds are denominated in their local currency.oGlobal Bond Offering - MNCs can engage in a global bond offering, in which they simultaneously sell bonds denominated in the currencies of multiple countries.oPrivate Placement of Bonds - MNCs may offer a private placement of bonds to financial institutions in their home country or in the foreign country where they are expanding.oLoans from Financial Institutions- An MNC’s parent commonly borrows funds from financial institutions.

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