Political and Country Risk

550 Words2 Pages
2. Identify common financial factors for an MNC to consider when assessing country risk. Briefly elaborate on how each factor can affect the risk to the MNC. When considering assessing country risk, common financial factors such as interest rate, exchange rate, inflation, industry competition and industry growth are important elements that drive the country risk. Interest rate: as a fact the money could be spent or saved, when interest rates are high, people tend to save more because of the benefits. Therefore, high interest rates discourage people to spend and that decreases the demand of the potential product offered by the MNC (Euromoney, n.d., & Madura, 2008 p. 486). Exchange rate: if the MNC faces a strong foreign currency appreciation, export will become harder since foreign aliens will find the products more expensive. Also, it will encourage more imports since the currency can buy more goods from abroad which will increase competition and reduce the demand of the MNC’s products (Euromoney, n.d., & Madura, 2008 p. 486). Inflation: the purchasing power is also a very important element since customers might reduce its demand for MNC goods. More inflation means less purchasing capacity and different expense allocation since families need to prioritize the decreased value of money (Euromoney, n.d., & Madura, 2008 p. 486). Industry competition and industry growth: similarly to a domestic competition rationale, how strong the competition is in the host country and which
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