Question

1. Will you buy political risk insurance? Look at the OPIC site and explore who they are and what services do they offer.

• OPIC. (n.d.). What we offer (Links to an external site.)Links to an external site. [Website].

Answer 1

Many American businesses grow by expanding their operations outside the United States. For some companies, the best opportunities for growth are in emerging markets. While these markets may offer economic advantages, they also create political risks. This term refers to government decisions, social changes, economic policies, and other factors that can seriously effect a company's financial condition. Businesses can protect themselves against many of these risks by purchasing political risk insurance.

Political risk insurance (PRI) covers financial losses that result from the types of risks outlined above. It protects a company against confiscation of funds and/or tangible assets, unreasonable taxes, nationalization of property or a project, and refusal to abide by contract terms. It covers acts by a government that prevent a business from converting earnings in the local currency and transferring them out of the country. It also covers the loss of equity assets (including physical property) and income losses caused by political violence.

Many Indian multinational companies are now taking this cover, with an increase in terrorism and related risks in other parts of the globe. Now, more companies in manufacturing, engineering, procurement and construction are buying this cover for their operations in Middle East and African countries.

The Overseas Private Investment Corporation (OPIC) is the United States government's development finance institution. It mobilizes private capital to help solve critical development challenges and, in doing so, advances the foreign policy of the United States and national security objectives.

Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets, catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, political risk insurance, and support for private equity investment funds, when commercial funding cannot be obtained elsewhere. Established as an agency of the U.S. government in 1971, OPIC operates on a self-sustaining basis at no net cost to American taxpayers.

OPIC helps provide medium- to long-term funding through direct loans and loan guarantees to eligible investment projects in developing countries and emerging markets. By complementing the private sector, OPIC can provide financing in countries where commercial financial institutions often are reluctant or unable to lend.

OPIC's political risk insurance enables U.S. businesses to take advantage of commercially attractive opportunities in emerging markets, mitigating risk and helping them compete in a global marketplace. OPIC helps U.S. investors protect their investments in a variety of situations, including political violence, expropriation or other government interference, and currency inconvertibility.

OPIC provides support for the creation of privately owned and managed investment funds. These funds make direct equity and equity-related investments in new, expanding or privatizing emerging market companies. OPIC-supported funds help emerging market economies to access long-term growth capital, management skills, and financial expertise, all of which are key factors in expanding economic development for people in developing nations.

OPIC supports projects in a range of industries—from energy to housing, agriculture and financial services. It focuses on regions where the need is greatest and in sectors that can have the greatest developmental impact. OPIC has increasingly focused on projects that encourage the use of renewable resources, which represent not only an urgent global need but also a significant investment opportunity.

Indian companies operating overseas can buy these covers from companies based here. Similarly, overseas companies buy it from overseas market to protect themselves from political risks that may emerge in India.