Question

Week 2 – Question 2
Describe the three (3) main risks of doing business in a country. Provide appropriate examples in

your response.

please answer this by harvard Referencing with no plagiarism. thank you very much.

Answer 1

Thre Three major risks to be considered while doing business with a country are

1. Currency Risk

2. Commercial Risk

3. Country Risk ( Also Known as Political Risk )

1. Currency Risk :

1.Currency risk also known as 'financila risk' refers to the risk of adverse fluctuations in exchange rates. Fluctuation is common for exchange rates, or for the value of one curreny in terms of onother.

2.Currency risks araises because international transactions are oftern conducted in more than one national currency.

For example, when Frankfort, Michigan based friut processor Graceland Friut, Inc. exports dried cherries to confectionerries in Japan, it will normally paid in Japanees yen. When Currencies fluctuate significantly, however, the value of the firms's assets, earnings, and operating income can be reduced. The cost of importing parts or components used in manufacturing finished products can increase dramatically if the values of the currency in which the imports are denominated raises sharply. Inflation and other harmful economic conditions experinced in one country may have immidiate consequenses for exchange rates due to the growing interconnectedness of national economies.

2. Commercial Risk :

1.Commercial risk refers to the firm’s potential loss or failure from poorly developed or executed business strategies, tactics, or procedures.

2.Managers may make poor choices in such areas as the selection of business partners, timing of market entry, pricing, creation of product features, and promotional themes.

3.While such failures also exist in domestic business, the consequences are usually more costly when they are committed abroad.

For example, in domestic business a company may terminate a poorly performing distributor simply with advance notice. In a foreign market, however, terminating business partners can prove costly due to regulations that protect local firms. Marketing inferior or harmful products, falling short of customer expectations, or failing to provide adequate customer service may harm the firm’s reputation and international performance.

3. Country Risk ( Aslo Political Risk ) :

1.Country risk (also known as political risk) refers to the potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country.

2.Country risk includes the possibility of foreign government intervention in firms’ business activities.

For example, governments may restrict access to markets, impose bureaucratic procedures on business transactions, and limit the amount of earned income that firms can bring home from foreign operations.

The degree of government intervention in commercial activities varies from country to country. For instance, Singapore and Ireland are characterized by substantial economic freedom—that is, a fairly liberal economic environment. By contrast, the Chinese and Russian governments intervene regularly in business affairs.

3.Country risk also includes laws and regulations that potentially hinder company operations and performance. Critical legal dimensions include property rights, intellectual property protection, product liability, and taxation policies. Nations also experience potentially harmful economic conditions, often due to high inflation, national debt, and unbalanced international trade