国际金融市场管理Ch17Country-Risk-Analysis课件.ppt

1、Country Risk Analysis17 ChapterSouth-Western/Thomson Learning 2003See c16.xls for spreadsheets to accompany this chapter.C16-2Chapter ObjectivesTo identify the common factors used by MNCs to measure a countrys political risk and financial risk;To explain the techniques used to measure country risk;a

2、ndTo explain how the assessment of country risk is used by MNCs when making financial decisions.C16-3Country Risk AnalysisCountry risk represents the potentially adverse impact of a countrys environment on the MNCs cash flows.C16-4Country Risk AnalysisCountry risk can be used:to monitor countries wh

3、ere the MNC is presently doing business;as a screening device to avoid conducting business in countries with excessive risk;andto improve the analysis used in making long-term investment or financing decisions.C16-5Political Risk FactorsAttitude of Consumers in the Host CountrySome consumers may be

4、very loyal to homemade products.Attitude of Host GovernmentThe host government may impose special requirements or taxes,restrict fund transfers,subsidize local firms,or fail to enforce copyright laws.C16-6Political Risk FactorsBlockage of Fund TransfersFunds that are blocked may not be optimally use

5、d.Currency InconvertibilityThe MNC parent may need to exchange earnings for goods.C16-7WarInternal and external battles,or even the threat of war,can have devastating effects.BureaucracyBureaucracy can complicate businesses.CorruptionCorruption can increase the cost of conducting business or reduce

6、revenue.Political Risk FactorsC16-8Corruption Perceptions IndexThe index,which is published by Transparency International,reflects the degree to which corruption is perceived to exist among public officials and politicians.In 2001,91 countries are ranked on a clean score of 10.Rank Country Score1Fin

7、land9.93New Zealand 9.44Singapore9.27Canada8.913U.K.8.314Hong Kong7.916Israel7.616U.S.A.7.618Chile7.520Germany7.421Japan7.1Rank Country Score23France6.726Botswana6.027Taiwan5.938South Africa 4.842South Korea4.246Brazil4.051Mexico3.757Argentina3.557China3.579Russia2.388Indonesia1.9C16-9Find out more

8、about Transparency International and the Corruption Perceptions Index by visiting http:/www.transparency.org/documents/cpi/2001/cpi2001.html.Online ApplicationC16-10Financial Risk FactorsCurrent and Potential State of the Countrys EconomyA recession can severely reduce demand.Financial distress can

9、also cause the government to restrict MNC operations.Indicators of Economic GrowthA countrys economic growth is dependent on several financial factors-interest rates,exchange rates,inflation,etc.C16-11What are the political and financial outlook for various countries?Online ApplicationConsult the Co

10、untry Commercial Guides prepared by embassy staff at http:/www.usatrade.gov/website/ccg.nsf/ccghomepage?openform.Refer to the CIAs World Factbook at http:/www.odci.gov/.Visit http:/ of Country Risk AssessmentA macro-assessment of country risk is an overall risk assessment of a country without consid

11、eration of the MNCs business.A micro-assessment of country risk is the risk assessment of a country as related to the MNCs type of business.C16-13Types of Country Risk AssessmentThe overall assessment of country risk thus consists of:Macro-political riskMacro-financial riskMicro-political riskMicro-

12、financial riskC16-14Note that the opinions of different risk assessors often differ due to subjectivities in:identifying the relevant political and financial factors,determining the relative importance of each factor,andpredicting the values of factors that cannot be measured objectively.Types of Co

13、untry Risk AssessmentC16-15Techniques of Assessing Country RiskA checklist approach involves rating and weighting all the identified factors,and then consolidating the rates and weights to produce an overall assessment.The Delphi technique involves collecting various independent opinions and then av

14、eraging and measuring the dispersion of those opinions.C16-16Techniques of Assessing Country RiskQuantitative analysis techniques like regression analysis can be applied to historical data to assess the sensitivity of a business to various risk factors.Inspection visits involve traveling to a countr

15、y and meeting with government officials,firm executives,and/or consumers to clarify uncertainties.C16-17Often,firms use a variety of techniques for making country risk assessments.For example,they may use a checklist approach to develop an overall country risk rating,and some of the other techniques

16、 to assign ratings to the factors considered.Techniques of Assessing Country RiskC16-18Developing A Country Risk RatingA checklist approach will require the following steps:Assign values and weights to the political risk factors.Multiply the factor values with their respective weights,and sum up to

17、give the political risk rating.Derive the financial risk rating similarly.C16-19Developing A Country Risk RatingMultiply the ratings with their respective weights,and sum up to give the overall country risk rating.Assign weights to the political and financial ratings according to their perceived imp

18、ortance.A checklist approach will require the following steps:C16-20Developing A Country Risk RatingDifferent country risk assessors have their own individual procedures for quantifying country risk.Although most procedures involve rating and weighting individual risk factors,the number,type,rating,

19、and weighting of the factors will vary with the country being assessed,as well as the type of corporate operations being planned.C16-21Developing A Country Risk RatingFirms may use country risk ratings when screening potential projects,or when monitoring existing projects.For example,decisions regar

20、ding subsidiary expansion,fund transfers to the parent,and sources of financing,can all be affected by changes in the country risk rating.C16-22Comparing Risk RatingsAmong CountriesOne approach to comparing political and financial ratings among countries is the foreign investment risk matrix(FIRM).T

21、he matrix measures financial(or economic)risk on one axis and political risk on the other axis.Each country can be positioned on the matrix based on its political and financial ratings.C16-23UnclearZoneAcceptableZoneUnacceptableZoneFinancial Risk RatingPolitical Risk RatingAcceptable UnacceptableSta

22、ble UnstableThe Foreign Investment Risk Matrix(FIRM)C16-24Actual Country Risk Ratings Across CountriesSome countries are rated higher according to some risk factors,but lower according to others.On the whole,industrialized countries tend to be rated highly,while emerging countries tend to have lower

23、 risk ratings.Country risk ratings change over time in response to changes in the risk factors.C16-25http:/www.worldbank.org/data/wdi2001/pdfs/tab5_2.pdfhttp:/ ApplicationHow risky is your country?Look up:C16-26Incorporating Country Risk in Capital BudgetingIf the risk rating of a country is in the

24、acceptable zone,the projects related to that country deserve further consideration.Country risk can be incorporated into the capital budgeting analysis of a project by adjusting the discount rate,orby adjusting the estimated cash flows.C16-27Adjustment of the Discount RateThe higher the perceived ri

25、sk,the higher the discount rate that should be applied to the projects cash flows.Adjustment of the Estimated Cash FlowsBy estimating how the cash flows could be affected by each form of risk,the MNC can determine the probability distribution of the net present value of the project.Incorporating Cou

26、ntry Risk in Capital BudgetingC16-28Applications ofCountry Risk AnalysisAlerted by its risk assessor,Gulf Oil planned to deal with the loss of Iranian oil,and was able to avoid major losses when the Shah of Iran fell four months later.However,while the risk assessment of a country can be useful,it c

27、annot always detect upcoming crises.C16-29Applications ofCountry Risk AnalysisIraqs invasion of Kuwait was difficult to forecast,for example.Nevertheless,many MNCs promptly reassessed their exposure to country risk and revised their operations.The 1997-98 Asian crisis also showed that MNCs had under

28、estimated the potential financial problems that could occur in the high-growth Asian countries.C16-30Online ApplicationFor more information on the Asian crisis,check out the following sites:http:/www.stern.nyu.edu/nroubini/asia/AsiaHomepage.htmlhttp:/www.asienhaus.org/navigat/english/asienhau.htmC16

29、-31Reducing Exposureto Host Government TakeoversThe benefits of DFI can be offset by country risk,the most severe of which is a host government takeover.To reduce the chance of a takeover by the host government,firms often use the following strategies:Use a Short-Term HorizonThis technique concentra

30、tes on recovering cash flow quickly.C16-32Reducing Exposureto Host Government TakeoversRely on Unique Supplies or TechnologyIn this way,the host government will not be able to take over and operate the subsidiary successfully.Hire Local LaborThe local employees can apply pressure on their government

31、.C16-33Borrow Local FundsThe local banks can apply pressure on their government.Purchase InsuranceInvestment guarantee programs offered by the home country,host country,or an international agency insure to some extent various forms of country risk.Reducing Exposureto Host Government TakeoversC16-34T

32、he U.S.government provides investment insurance through the Overseas Private Investment Corporation(OPIC).Visit the OPIC at http:/www.opic.gov/.The World Banks Multilateral Investment Guarantee Agency(M IGA)offers political risk insurance to investors in emerging economies.Visit the M IGA at http:/w

33、ww.miga.org.Online ApplicationC16-35Impact of Country Risk on an MNCs Valuenttmjtjtjk1=1,1ER ECF E =ValueE(CFj,t)=expected cash flows in currency j to be received by the U.S.parent at the end of period tE(ERj,t)=expected exchange rate at which currency j can be converted to dollars at the end of per

34、iod tk=weighted average cost of capital of the parentExposure of Foreign Projects to Country RisksC16-36Why Country Risk Analysis Is ImportantPolitical Risk FactorsAttitude of Consumers in the Host CountryAttitude of Host GovernmentBlockage of Fund TransfersCurrency InconvertibilityWarBureaucracyCor

35、ruptionChapter ReviewC16-37Chapter ReviewFinancial Risk FactorsCurrent and Potential State of the Countrys EconomyIndicators of Economic GrowthTypes of Country Risk AssessmentMacro-Assessment of Country RiskMicro-Assessment of Country RiskC16-38Chapter ReviewTechniques of Assessing Country RiskCheck

36、list ApproachDelphi TechniqueQuantitative AnalysisInspection VisitsCombination of TechniquesC16-39Chapter ReviewDeveloping a Country Risk RatingExample of Measuring Country RiskVariation in Methods of Measuring Country RiskUsing the Country Risk Rating for Decision-MakingComparing Risk Ratings Among

37、 CountriesActual Country Risk Ratings Across CountriesC16-40Chapter ReviewIncorporating Country Risk in Capital BudgetingAdjustment of the Discount RateAdjustment of the Estimated Cash FlowsApplications of Country Risk AnalysisC16-41Chapter ReviewReducing Exposure to Host Government TakeoversUse a Short-Term HorizonRely on Unique Supplies or TechnologyHire Local LaborBorrow Local FundsPurchase InsuranceImpact of Country Risk on an MNCs Value