Question

TodoTec, a US-based financial technologies (fintech) company is considering signing a three-year consulting contract with PagoLoco, a new company developing an epayments system in Jefalonia. This is a small South American country, historically controlled by a group of prominent families. However, the majority of the population is in the lower economic class.

The contract, payable in U.S. Dollars, calls for TodoTec to provide consulting services and license their technology for the development of the new national epayments system. The government of Jefalonia agreed to issue bonds denominated in US Dollars to build a new data management center to house the project. The local currency, the Piscocrudo, has been stable against the US Dollar for the last two years.

However, politics in Jefalonia are currently unsettled. The leading candidate for the July 2018 presidential election is Amlotonia Notrumpla from the Populist Party. If elected, she has promised to make “big changes” to government programs and economic policy. Prepare a  memo for TodoTec management to discuss risk factors from a new populist government. What steps might TodoTec take to reduce potential risks?

Answer 1

Risk factors associated with new government and steps of reduction

To,

     XYZ

    TodoTec Management

Recent data received from the Jefalonia a small South American country has providing an indication that the economy of the population comes under lower level. This may create the financial risk. As the people are not very well in their economic background then they itself need support. Although the local currency is stable but the economic conditions are not predictable for the future. There are many financial crises which happened earlier and disclosed in the later stages.

The political conditions are not stable as the new populist party leader is leading. But the uncertainty may cause the business loss. As if another party leader has won the election then they might not deal with the company. This may loss the business. This is a political risk associated with the business.

In order to reduce the risk, the company have to take the steps. The company has to get the assurance from the government that during this contract time period they make not be intervened by any political circumstances. Their interference would be only in case the company has made huge losses to the government. The Company is not liable for the payment which was changed due to change in the local currency. It is the not the company liability. The company has to build good relationship with the new leaders so that they liberate the rules and regulations towards the company. The company has to maintained a fund for the risk associated to any kind of finance.

This is all we need to ensure.

ABC

TodoTec Company