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Political Risk

Political Risk. Chapter Sixteen Eitman, Stonehill, &Moffett. Political risk. change in rules which lead to reallocation of resources tax rules ownership rules/capital controls restrictions of foreign ownership exchange controls

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Political Risk

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  1. Political Risk Chapter Sixteen Eitman, Stonehill, &Moffett Chapter 17 - Political Risk

  2. Political risk • change in rules which lead to reallocation of resources • tax rules • ownership rules/capital controls • restrictions of foreign ownership • exchange controls • change in political structure which portends reallocation of resources Chapter 17 - Political Risk

  3. Macro risks • expropriation • government seizure of property • valuation • book?? Market?? • exchange rates?? • time value of money • civil strife • investment in Yugoslavia, Russia?? • antagonistic governments • for US Iran , Cuba ?? Chapter 17 - Political Risk

  4. Micro risks - Government Policy Goals • employment policies • resource reallocation • taxes • transfers • trade policies • protectionism • balance of payments • exchange rate policy • economic development Chapter 17 - Political Risk

  5. Barriers • limitations to trade • quotas, embargoes, licensing, domestic content • administrative restrictions • fees, tariffs, deposit requirements, tax adjustments • non-economic discrimination • quality standards, environmental, health • direct government interference • procurement, export subsidies, domestic subsidies Chapter 17 - Political Risk

  6. Non-economic goal conflicts • economic emperialism • African economies • national security concerns • U.S. concern • corruption & nepotism • South, Central America, Africa, Asia • xenophobia • Asian economies Chapter 17 - Political Risk

  7. Assessing Political risk • political stability • probability of change • direction change would take • firm specific • negotiating terms • operating strategies to mitigate risk Chapter 17 - Political Risk

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