Country Risk
1
Country Risk
Definition
• The Likelihood that unexpected events within a
host country will influence a client’s or a
government’s ability to repay a loan or make a
payment
• Sovereign Risk/Political Risk
Unilateral repudiation of foreign obligations
• Economic Risk
Inability to pay
2
Political Risk
• Firm Specific
- governance issues
- business risks
- industry
- goal conflicts
3
Political Risk
• Handling Firm Specific Risk
- Investment agreement
* funds flows
* transfer prices
* export licences
* tax
* access to markets
4
Political Risk
• Handling Firm Specific Risk
- Insurance
* government
* private
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Political Risk
• Handling Firm Specific Risk
- Operating Strategies
* local sourcing
* location
* transportation
* technology
* markets (brand name)
* finance (thin equity, multi source)
6
Political Risk
• Country Specific Risk
- Blocked Funds/ Transfer Risk
* other fees
* transfer pricing
* leading and lagging
* fronting loans
* other unrelated exports
7
Political Risk
• Country Specific Risk
- Cultural and Institutional Risk
* ownership structure
* human resource norms
* religion
* nepotism and corruption
* intellectual property rights
* protectionism
8
Political Risk
• Global Specific Risk
- Terrorism
- Anti-globalisation
- Environmental Concerns
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