World Trade and International Finance

Running Head : WORLD TRADE

World Trade and International Finance

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World Trade and International Finance

Investment portfolios are generally determined by two general factors country risk and political risk . Country risk refers to the likelihood that changes in the macro environment adversely affecting the operating profits or the value of assets (domestic and foreign ) in a specific country . There are three key phrases in the definition that are of importance to any risk analysis . First , only changes in the macro environment (economic environment ) are perceived as

significant variables in assessing country risk . Second , it is assume that country risk is probabilistic in nature . One can assume that the methods used in evaluating country risk are statistical in orientation . And third , it is assumed that the higher is the country risk , the higher is the chance for the operating profits or the value of assets to be adversely affected

There are several indicators of country risk . Here are as follows : 1 monetary controls used by central banks , 2 ) fiscal policies implemented by governments , 3 ) exchange rate conditions (whether a currency is protective , floating , or semi-floating , 4 ) level of tariffs or subsidies , 5 ) marginal domestic propensity to invest , 6 ) credit ratings and 6 ) political risk . For simplicity purposes , the last indicator of country risk will be discussed in the next paragraphs . It is assumed that the higher the monetary controls of central banks , the lower is the probability that assets (foreign and domestic ) will lose significant value . Monetary controls stabilize...