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Foundations Of Financial Management
Found in: Page 679
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

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?

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.

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Step by Step Solution

Step 1: 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.

Step 2: 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. Insurance against such risk is the best option when the political risk level is high.

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