...International Risk Paper Celeste Moniz FIN 320 Philip Celestin October 10, 2011 There are a lot of risks that is involved with any capital project where a firm is thinking of investing. International capital projects have additional risk and issues that needs to address. Two of the biggest international investment concerns are the exchange rate risk and political risks. Another risk that may be an issue with international investments would be economical risks. Descriptions of these three risk factors will be explained. The exchange risk has mostly to do with the exchange rates in that certain country where a project is thinking of opening. Exchange rates are very unpredictable. It is possible that the exchange rate will be different tomorrow than it is today. The currency from different countries is traded in a large scale on a currency market that is similar to stocks, bonds, and other commodities. The market is very active with trillions of dollars that is traded daily. The fluctuation in value is an additional risk when making investments in other countries. The second of the biggest risk is called the political risk. Political risk deals with political conditions in that country of interest. This could negatively affect the profits from foreign investments. When making investments in foreign countries, close attention to the political climate, local laws, local perceptions of the company’s home country, and the social unrest in the targeted country. ...
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...International business risks Frequently business owners’ jump when they see prospects overseas without first taking the time to conduct market research and train their workforces for the risks they may face. Risk is the likelihood of a result happening. Risk is often associated with undesirable consequences. When doing business in international market there are many risks and challenges that a firm might face. The foremost risks that are linked with businesses fetching in international finance include foreign exchange risk and political risk. These risks may occasionally make it tough to uphold persistent and unfailing revenue. Overseas exchange risk happens when the rate of investment swings due to changes in a currency's exchange rate. When a home currency appreciates against a foreign currency, revenue or earnings earned in the foreign country will fall after being exchanged back to the domestic currency. Due to the somewhat impulsive nature of the exchange rate, it can be quite problematic to guard against this kind of risk, which can hurt sales and revenues. For example, assume a U.S. company receives a majority of its business in China. If the Chinese Yuan depreciates against the U.S. dollar, any yuan-denominated profits the company receives from its Chinese operations will yield fewer U.S. dollars compared to before the yuan’s depreciation. Political risk occurs when a country's government suddenly changes its guidelines...
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...Commercial Risk Commercial risk involves the ability of firms to strategize successfully and implement its strategy through effective tactics. The challenge is that any mistakes made abroad can be more costly due to local government regulations. Sudden changes in the trade laws and legal systems in other countries exposes international firms to regulatory risks. For instance changes in a country’s banking system may limit a firm’s access to funding or their ability to repatriate money to their home countries. A major commercial risk is usually lack of knowledge of the international market. If exporters, for example do not have in-depth knowledge on the area where its sales are being made, it is more likely to fail in international business. Commercial risk occurs as the result of inadequate formulation and implementation of strategies, tactics and procedures. These also include timing of the company into a particular market, the competitive intensity existing prevailing in the market, poor strategy execution and the weakness of the partner and also the various kinds of operational problems. It should however be considered that commercial risks are usually unpredictable and it is therefore essential for firms to lay down effective strategies in place to ensure that this risk is reduced. Currency Risk Currency or Financial risk occurs as a result of the daily fluctuations of different currencies against each other. It also includes the valuation of assets and the foreign...
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...resources. However, companies routinely exaggerate the attractiveness of foreign markets, which leads to expensive mistakes. This essay shall discuss the opportunities and risk associated with distance in international expansion. According to Ghemawat (2001), distance between two countries can manifest itself along four basic dimensions: cultural, administration, geographic and economic. Geographic distance, for instance, affects the costs of transportation and communications and is particularly importance to companies that deal with heavy or bulky products. Cultural distance, by contrast, affects consumer’s product preferences. It is a crucial consideration for any consumer goods or media company but it is much less important for a cement or steel business. Administrative distance involves historical and political associations shared by countries that greatly affect trade between them. Economic distance states that the wealth or income of consumers is the most important economic attribute, which creates distance between countries and has a marked effect on the levels of trade and types of partners a country trades with. The opportunities and risk associated with distance are based on the four dimension stated above where differences in each dimension can either be an opportunity to exploit or a risk to consider when companies decide to globally expand. For example, large economic distances between two countries can be an opportunity for companies to gain competitive advantage...
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...International Risks International Risks The investment of a firm into any project carries certain risks and undertaking an investment in a foreign market compounds these risks. Even after all projections and ratios provide positive feedback some serious concerns remain. There is always the uncertainty of knowing how competitors will respond; if the project can remain within budgeted projections; or if sales growth will meet projected estimates (University of Phoenix, 2007). In addition to these standard risks, investors in foreign markets are concerned with the differences in changing exchange rates, political and ethical influences and tax expenses. The Currency Exchange The currency exchange market fluctuates similar to that of stocks and bonds. When a company wants to purchase or invest into a foreign market it is first determined what one unit of the investors currency is equal to in one unit of the foreign currency. A market’s currency value is influenced by high or low activity, supply and demand and other economic influences (University of Phoenix, 2007). Seeing a gain in the foreign market does not necessarily mean that the gain will be realized in the home currency if the foreign currency has depreciated against the home currency(University of Phoenix, 2007). The currency exchange rate is of concern to investors, but, with strategic planning can be managed. An investing firm should limit the amount of...
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...“Critically evaluate how international and geo-political risk to business might impact upon a person’s overall lifestyle”. Introduction My lifestyle keeps me busy but I enjoy the ability to catch up with friends and relax at a café or the beach. I am able to do the things I enjoy through working two jobs, on a regular roster. I enjoy cultural activities with friends in Sydney and regularly getting to the beach for a swim. Australia is a beautiful country which allows me to enjoy the sun and beach on a regular basis. A combination of flexibility and structure allows me to financially support myself while studying full-time; work is enjoyable and adds to my social and physical well-being. The flexibility in university and work allows me to catch up with friends regularly, while maintaining my financial independence. The political environment enhances my wellbeing by provide an avenue to defer my university fees until I graduate and get a job. Risk is considered the probability of a specific loss of worth, against the prospect of gaining value through the intentional interaction with uncertainty (Slovic, 2000). Risk is associated with a given action and/or inaction, of a foreseen/unforeseen nature that can result in a loss or gain in regards to financial wealth or physical health. Slovic (2000) expresses that all human interactions carry some risk, but the degree of risk depends on the situation and the perception of its severity. ...
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...International Business Risks Tatiana Irala MGM336-1301A-05 Instructor: Anna Goodloe Even though there are many opportunities available when conducting business internationally, the amount of risks that arise can also be limitless. However, this should not be discouraging when the managers that work abroad are well-trained and informed about the host country’s political, cultural, environmental, and economic risks and differences. These different environmental factors are constantly changing, often drastically; making it challenging to manage. For instance, the political environment in another country may be quite unstable due to a recent election. Furthermore, violence and revolutions complicate when traveling through the host country. Another risk that presents itself is in the form of culture shock. Even if the managers are familiar with the host country’s cultural differences, cultures also evolve throughout time. Environmentally, managers must respond to the future forecasts to determine the probable impact, and to ensure the survival and growth of the organization as it interacts with its dynamic environment (Phatak, Bhagat, and Kashlak, 2009). The host country in question here is Brazil with its booming economy and market for growth. Although, Brazil is known for its many negative connotations regarding bribery, corruption, and organized crime; the conditions in the labor market however remain favorable. Unemployment is at the lowest it has been in years and the...
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...International Commercial Risks Maria Mendoza Suarez LAW 421 June 16, 2014 Michael Green International Commercial Risks International law is not a simple process to adhere to, especially when trying to conduct business abroad. According to Melvin (2011), international law is best defined as a “body of rules and principles of action binding on countries, international organizations, and individuals in their relations with one another” (p. 631). Contracts and legal agreements are a crucial instrument or tool used when building relationships with other nations. There are many issues than can arise within a period of time that be minimized, if not avoided completely. There are factors that will need to be considered when deciding to take any legal action against the other nations, meanwhile respecting their customs and laws. There are plenty of risks associated in international law that organizations must take into consideration when conducting business with businesses abroad. There are possibilities of disputes and disagreements between the businesses that could either damage their relationship or help improve the growth of their business. There are major issues involved that would need to be considered when a local business decides to take legal action against the nation whom the local organization is conducting business with. The first and second major issue is the understanding of choice-of-law and forum clauses. The choice-of-law is a clause are terms written within...
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...A Summary of the case “Coping with Financial and ethical Risks at American International Group (AIG)” Background American International Group, Inc. is a company whose operation began back in 1919. It was established back then by Cornelius Vander Starr as an insurance agency in Shanghai, China. AIG left china in 1949 after Starr had established himself as the westerner the sell insurance to the Chinese people. AIG headquarters then shifted from china to New York City, which is still the headquarters up to date. It is from here that AIG began its expansion tapping into other markets such as the Latin America, Asia, Middle East and Europe through use of its subsidiaries. AIG – Causes of its demise The start of problems facing AIG began during the tenure of Greenberg as AIGs' CEO. It was during tenure that the company expanded from its initial line of insurance into other many complex lines of business and insuring risks that only a few other companies would consider handling. This led to the involvement of the company in businesses that it did not fully comprehend. AIG started investing in many different types of securities which included mortgage backed securities and also credit derivatives trading. AIG then went ahead to become a leading player in these markets, insuring other company's debt obligations against losses due to its excellent credit rating at the time. It was AIG's Financial Product Unit (AIGFP) that brought about the fall of the company...
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...access the political risk in that country. Political stability is the biggest reason to attract foreign investment. Here are some common questions they should be asking themselves: 1. Is the government stable? 2. Is the government a democracy or a dictatorship? 3. Is power concentrated in the hands of a few? 4. What is the extent of government’s involvement in the private sector? Etc. Before foreign investment it is important to assess if a country believes in free markets or government control in industry. The country’s view on capitalism is also a factor for business consideration. I think that stable political system builds a strong economic environment. With proper legal policies in place, a country’s economy is bound to benefit. Bribery is an important issue in international business and unfortunately a living reality. Even though the FCPA was structured to help the U.S. companies understand what is and what is not considered bribery in a foreign land, it is not always clear what is considered a bribe. I guess perception also plays a big role. What is considered bribery by the U.S. may be considered as a gift by other countries. Countries with severe bribery conditions are known to be the ones where poverty and weak economic conditions exist. Today many companies have written and provided formal set of procedures to their employees to help them stay away from bribing anyone intentionally or unintentionally. Like bribery, another issue in international business is the...
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...CFO D.W. Meline how to manage 3M’s future exposure of the foreign exchange rate risk. In doing so, the overall profile of the company is discussed; the current foreign exchange risk management instruments are described; and conclusions are drawn, followed by recommendations. ABSTRACT This paper is written with a purpose to give a strategic advice to 3M’s current CFO D.W. Meline how to manage 3M’s future exposure of the foreign exchange rate risk. In doing so, the overall profile of the company is discussed; the current foreign exchange risk management instruments are described; and conclusions are drawn, followed by recommendations. International Risk Management: An Analysis of 3M’s Foreign Risk Management International Risk Management: An Analysis of 3M’s Foreign Risk Management Contents Executive Summary 3 Introduction 4 1. Description Historical Exchange Rates 6 2. Foreign Currency Exchange Rate Risk 10 2.1. Current Strategy to Manage Exchange Rate Risk 10 2.1.1. Cash Flow Hedging 10 2.1.2. Net investment hedging 13 2.2. Currency Translation Effects on Business Segments 14 3. Appreciating and Depreciation of Domestic Currency and Foreign Exchange Rate Risk Management 15 3.1. 3M’s Domestic and International Transactions 15 3.2. Appreciation of the Domestic Currency 17 3.3. Depreciation...
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...Assignment On Risk Management in International Business with Special Reference to Bangladesh Submitted to Dr. Shah Md. Ahsan Habib Crouse Instructor: International Business Submitted by Milton Kanti Das Id: 12364015 Program: MBA BRAC Business School 1::Introduction: Due to globalization, it’s hardly to find any business activities that are only associated within only in local market. Basically, today’s business means international business. On the other hand international business consists of lots of opportunities as well as lots of risks. Being success in the international business depends on handling of the risks properly. If these types of risks cannot handle properly doing business will be very difficult to sustain in international market. There are risks in international business among them some can be handled and some cannot be handled. Here in this page I will try to discuss those risks regarding international trade that can be handled by using different mechanism. There are different types of mechanisms have developed all over the world to reduce these risks. Throughout the paper I have tried to discuss these mechanisms also. 2::Objectives To discuss the theoretical aspect of risks and techniques of risk management in international business. To discuss the risk management tools of Bangladesh. 2.1:: Theoretical Aspect of Risks and Techniques of Risk Management in International Business: In international business firms have to face many risks due to political...
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...enterprise, investing internationally is a risk that can be turned into opportunity once well managed. There is a veritable sea of benefits in international portfolio investment. These include participation in the growth of other countries, hedging against exchange rate exposure to risk, diversification benefits and advantages (abnormal returns) of market segmentation on a global scale. However, we cannot be so overwhelmed by the payoff of international portfolio investment as to overlook the bitter side of it. In an international environment, financial investments are not only subject to currency risk and political risk, but also to many institutional constraints and barriers. What are crucial in international portfolio investment are optimal portfolio allocation and the associated market and currency risks. Diversification into multiple securities can practically eliminate potential severe losses from any individual security. However, domestic diversification cannot remove systematic market risk due to high correlations among most domestic securities. Since market risk differs from country to country, international diversification can reduce substantially the overall risk exposure of investment portfolios. Introduction and Overview Increased global competition and opportunity have attracted many national economies and individual domestic businesses to the international markets. In recent years international investing has received a boost from...
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...Commerce 260508 Autumn 2009 (3 units) Course Objective This course examines important issues in the rapidly evolving area of international financial markets. It focuses on various aspects of international portfolio management and open-economy macroeconomics, and is a natural extension to the theories and practical issues explored in Investments and/or Finance. This course is aimed at students wishing to acquire a sound understanding of the main opportunities in international investments. For example, the relevance of hedging in the management of currency risk will be studied in light of theoretical results and empirical evidence. We will also briefly cover foreign direct investment (FDI), since in general, the revenue generated from FDI by U.S. firms is about three times as large as the revenue generated from the exporting of U.S. goods by U.S. firms. Due to the ever increasing importance of international corporate governance, there is a corresponding need to decipher and use information in financial reports. At least one class meeting and one case study will touch on some key issues in international financial reporting and analysis, such as financial disclosure/transparency, incentives for off-balance sheet liabilities, hedge accounting, lease accounting, footnote disclosures, and intercorporate equity investments, and international financial reporting differences. We will also use many real-life examples from market practices to emphasize the engineering...
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...Kumar (4226103) Alpha International Academy St. Lawrence College @ Alpha offers high quality education in a challenging yet student friendly environment.The St. Lawrence College curriculum is designed to meet the challenges unique to international students while exceeding academic expectations through a combination of theory and hands on experience.We offer smaller class size allowing efficient teacher-student interaction, flexible instruction hours and affordable tuition fees. Convenient payment options are available to cater to our students’ financial needs. Programs International Business Management Human Resource Management General Business Business Administration Management General Arts and science Logistics and supply chain management Contact Us Admissions Office punja gutta Phone:55826955 Fax: 816 640 1559 General Inquiries: info@slc-alpha.ca Admission/Registration: admissions@slc- alpha.ca St.Lawrence Main Campus: www.stlawrencecollege.ca Foreign Market Entry Modes The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can | be achieved via | the | following | four | | mechanisms:Exporting | | | LicensingJoint Venture | | Direct Investment Objectives of Alpha International Academy to venture into international business. To promote international education as a core value...
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