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Foundations of Multinational Financial Management Alan Shapiro John Wiley & Sons

Foundations of Multinational Financial Management Alan Shapiro John Wiley & Sons. Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton. Country Risk Analysis. Chapter 5. THE MEASUREMENT OF POLITICAL RISK. I. MEASURING POLITICAL RISK A. Country-specific perspective.

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Foundations of Multinational Financial Management Alan Shapiro John Wiley & Sons

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  1. Foundations of Multinational Financial ManagementAlan ShapiroJohn Wiley & Sons Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton

  2. Country Risk Analysis Chapter 5

  3. THE MEASUREMENT OF POLITICAL RISK • I. MEASURING POLITICAL RISK • A. Country-specific perspective

  4. 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

  5. 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

  6. THE MEASUREMENT OF POLITICAL RISK • D. Subjective Factors • 1. Profit Opportunity Recommendation • 2. Political Risk and Uncertain Property Rights

  7. 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. • b. Measurement: use the • balance-of- payment account

  8. THE MEASUREMENT OF POLITICAL RISK • c. Causes of capital flight • 1.) Inappropriate economic policies • 2.) Expectation of devaluation • 3.) High political risk

  9. ECONOMIC AND POLITICAL FACTORS • II. Economic and Political Factors Primary focus: How well is the country doing economically? • A. Fiscal Irresponsibility • -high government deficits • B. Monetary Instability • C. Controlled Exchange Rate System • -currency usually overvalued • D. Wasteful Government Spending • -inability to service foreign debt

  10. ECONOMIC AND POLITICAL FACTORS • D. Resource Base • -lack of strong work ethic • E. Country Risk and Adjustment to External Shocks • 1. What are the impacts of external shocks: • -how well a nation responds varies

  11. ECONOMIC AND POLITICAL FACTORS • 2. Key Indicators of Country Risk • a. Relative size of government debt • b. Money expansion • c. Existence of government- imposed barriers to market forces

  12. ECONOMIC AND POLITICAL FACTORS • 2. Key Indicators of Country Risk (con’t) • d. Level of tax rates • e. amount of government-owned firms • f. Political and fiscal responsibility • g. Amount and extent of corruption

  13. ECONOMIC AND POLITICAL FACTORS • Key indicators of economic health • a. Structural incentives • b. Legal structure • c. Clear incentives to save • d. Open economy • e. Stable macroeconomic policies

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