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Chapter 5: Q8DQ (page 679)

What procedures would you recommend for a multinational company in studying exposure to political risk? What actual strategies can be used to guard against such risk?

Short Answer

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Multinational Companies can analyze the country's political stability before making any investment either by hiring a consultant or by forming committees of top-level managers.

Step by step solution

01

Methods to study political risk

The various methods used by the Companies for investigating political risks are: -

  • Hire a consultant to provide t hem with a report of political risk analysis.
  • Forms their committees of top-level managers from headquarters and foreign subsidiaries.
02

Strategies used to guard against political risk

Following are the various methods from which companies can save themselves from political risks: -

  • Establishing a joint venture with local businesses and market. Political connections with local partners help in understanding the political environment of the country.

  • Entering into a joint venture with large firms from other countries.The foreign government will be more hesitant to antagonize several partner firms of many nationalities simultaneously.
  • Insurance against such risks should be obtained in advance. Insuranceagainst such riskis the best option when the political risk level is high.

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List the factors that affect the value of a currency in foreign exchange markets.

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Assume the following financial data for the Noble Corporation and Barnes

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Total earnings ......................................................... \(1,820,000 \)5,620,000

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