Question

Describe the three (3) main risks of doing business in a country. Provide appropriate examples in your response.

Answer 1

Three main risks of doing business in a country are as follows:

1. Operational Risk : These are the risks associated with the operational and administrative procedures of the particular industry.Operational risk focuses on how things are accomplished within an organization and not necessarily what is produced or inherent within an industry. These risks are often associated with active decisions relating to how the organization functions and what it prioritizes. While the risks are not guaranteed to result in failure, lower production, or higher overall costs, they are seen as higher or lower depending on various internal management decisions.

Example: One area that may involve operational risk is the maintenance of necessary systems and equipment. If two maintenance activities are required, but it is determined that only one can be afforded at the time, making the choice to perform one over the other alters the operational risk depending on which system is left in disrepair. If a system fails, the negative impact is associated directly with the operational risk.

Similarly in a sales-oriented business chooses to maintain a subpar sales staff, due to its lower salary costs or any other factor, this behavior is considered an operational risk.

2 .Financial Risk:
Financial Risk is one of the major concerns of every business across fields and geographies. Financial risk refers to a company's ability to manage its debt and financial leverage.

Types of Financial Risks:

Financial risk is one of the high-priority risk types for every business. Financial risk is caused due to market movements and market movements can include a host of factors. Based on this, financial risk can be classified into various types such as Market Risk, Credit Risk, Liquidity Risk, Operational Risk, and Legal Risk.

Example:  If a firm takes a loan and isn’t able to pay it off, then it is a credit financial risk.

3. Non- Business Risk: These types of risks are not under the control of firms. Risks that arise out of political, legal and economic imbalances can be termed as non-business risk.

Example: A change in the corporate tax Policy by the ruling government can change corporate profits.