Question

evaluate the economic and political factors underlying country risk giving examples from the current international environment and explain how they might be managed

Answer 1

Country risk is the political , economic, sovereign disturbance in a international country that affects the company operations and hinders its investment opportunities. For example, the current political and economic instability in Venezuela has cut off the country from major economic trade ties and also any foreign investments. This has effected the exchange rate. Another example can be of China which has imposed substantial import and export restrictions hence forcing firms to move base to other countries.

Country risk can be managed by hedging the foreign currency transactions, avoid borrowing in foreign currency, avoid expansion in countries that have high risk and investment in countries that are less prone to risks.