Ch 1: Country RIsks Flashcards
Why do country risks matter?
The specifics of the country determine the development of specific industries.
Name 3 dimensions of country characteristics.
Large/Small
Open/Closed
Capitalist/Socialist/Communist regimes
What the sovereign government powers?
The sovereign has control over
- the regulatory framework,
- tariffs,
- fiscal policy and taxation,
- monetary policy,
- foreign currency controls,
These imply for example geo-political risks (civil unrest, public uprisings) and legal risks (independent judicial system, corruption, bankruptcy code - creditor/borrower-friendly).
What are the 5 main factor groups for country risks?
Physical and human infrastructure
Financial markets
Macroeconomic factors
FX regime
Government guaranteed businesses
What are the 3 human and physical infrastructure factors?
Natural resources (environmental issues)
Physical infrastructure - roadways, railroads, airports, harbors, etc.
Labor market and educational level
What are the 2 main financial markets factors?
Banking system - depth and liquidity
Accounting system
What are the 6 main macroeconomic factors?
Consumer spending
Inflation and pricing flexibility
Interest rates
Leading indicators
Coincident indicators
Lagging indicators
Name a few leading indicators.
PMIs, ISM
Consumer expectations
Manufacturing new orders, orders of consumer goods and materials
Building permits, new private housing units
Name a few coincident indicators.
Industrial production
Unemployment
Personal income/wages
Name a few lagging indicators.
Inflation
Outastanding loans
Inventories
Name a few lagging indicators.
Inflation
Outastanding loans
Inventories
What characterizes developed economies? Name 9 characteristics.
Abundant natural resources
Well-trained and well-educated workforce
Strong fiscal and monetary policy
Stable currency
Reasonable level of taxes and tariffs
Sophisticated domestic capital market
Strong banking structure
Effective infrastructure
Established businesses
