Indian Financial management ifm UNIT 2.pptx

Political risk

1. BBA-FS (sem-6) GUNI-VMPCMS V. M Patel college of management studies Unit 2- Risk in International Operations Political Risk – types , evaluation and management Sr no. Name Enrollment No. 1 . Dev . Mevara 21052321004 2. Karna . Thaker 21052321005 3. Mohit. Khatri. 21052321006

2. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Topics to be covered What is Political Risk Impact Of Political Risk Types of Political Risk Evaluation of Political Risk How can we manage Political risk ?

3. BBA-FS GUNI-VMPCMS V. M Patel college of management studies What is Political Risk ? Political risk is the risk an investment’s returns could suffer as a result of political changes or instability in a country. Instability affecting could stem from a change in government, legislative bodies, other foreign policymakers or military control.

4. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Impact of Political Risk Political instability is one of the major reasons for : • Fall in equity prices and stock market crashes in any country. • Fall in the value of a country’s currency in the international market. • Widespread protests, unemployment, corruption, and other social evils. • Widening gap between the rich and the poor and unstable operating conditions for the business. • Spiral-like situation with falling growth rate, falling production and sales, falling foreign investment and equity markets, falling exports, and can lead to . deflation and even recession.

5. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Types of Political Risk Businesses are affected by the decisions governments make that can affect individual businesses, industries, and the economy. These include taxes, spending, regulation, currency valuation, trade tariffs, labor laws and environmental regulations. Also, there are both macro- and micro- level political risks.

6. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Macro-level political risks have similar impacts across all foreign actors in a given location. Change to tax and labor laws
Regulatory restrictions on business
Currency and exchange controls
Terrorist Activity
Expropriation or government seizure of property
War Micro-level risks focus on sector, firm, or project specific risk Specific regulations
Contract equipment Tax discrimination
Profit restrictions
Violence

7. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Micro-Level Political Risk Micro-level risks are risks that are more directly associated with operations conducted by a firm. These risks usually affect specific companies or areas of the economy. Tariff introductions, government regulations to specific industries, or initiatives that are designed to favour local businesses are all examples of micro-level political risk.

8. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Evaluation of Political Risk Here are some simplified points to consider when evaluating political risk in international financial management: 1. Country Stability : Assess how stable the government and political system are in the target country. 2. Rule of Law: Consider how well laws are enforced and if there’s a fair and transparent legal system. 3. Corruption Levels: Look at the prevalence of corruption and how it might affect business operations and investments.

9. BBA-FS GUNI-VMPCMS V. M Patel college of management studies 4. Policy Predictability : Evaluate the predictability of government policies and regulations that could impact investments. 5. Social Unrest: Take into account any social or political tensions that could escalate into protests or unrest. 6. Exchange Rate Stability: Analyze the stability of the local currency and how it might fluctuate due to political events. By systematically evaluating these factors, international financial managers can better understand and manage political risk to make informed investment decisions and mitigate potential losses .

10. BBA-FS GUNI-VMPCMS V. M Patel college of management studies Management of Political Risk Certainly! Here are some simplified points on managing political risk in international financial management: Diversify Investments: Spread investments across different countries and industries to minimize the impact of political instability in any single market. Maintain Flexibility : Be prepared to adapt investment strategies and business plans in response to changing political conditions. Establish Contingency Plans : Develop contingency plans outlining actions to take in the event of political crises or disruptions. Build Relationships : Foster positive relationships with government officials, local communities, and business partners to navigate political environments more effectively.

11. BBA-FS GUNI-VMPCMS V. M Patel college of management studies 5. Monitor Indicators: Keep an eye on key political indicators such as election outcomes, government policies, and social unrest to anticipate potential risks. 6. Review Contracts : Regularly review contracts and agreements to ensure they include provisions for mitigating political risks, such as dispute resolution mechanisms. 7. Engage in Diplomacy : Engage in diplomatic efforts and advocacy to influence policies that may impact investments positively. By implementing these strategies, businesses can enhance their ability to manage political risk and safeguard their international investments more effectively.

12. BBA-FS GUNI-VMPCMS V. M Patel college of management studies THANK YOU