Economic Environment and Risk mitigation

1. Develop a report that analyzes one company’s approach to multinational expansion. Include financial factors such as economic environments and market conditions, risk mitigation strategies, and ethical and legal practices. Specifically, the following critical elements must be addressed:

1. Economic Environments and Market Conditions C. Explain the role of international financial markets and institutions in global environments in evaluating their impact on the company’s risk management strategies.
2. Analyze impacts of exchange rate on the company’s performance for determining if a loss occurred because of fluctuations or devaluations of foreign currencies. Provide examples from the past year to support your claims.
3.  Risk Mitigation: Examine sources of risk and risk reduction methods available to multinational corporations. Use the 2007–2008 annual report and the most current annual report to support responses in this section.
4. Discuss risks and financial factors associated with exchange rates and interest rates for assessing how they inform the company’s financial management approaches.
5. Discuss diversification in the company’s expansion model for examining advantages or disadvantages, and provide examples and financial information from the past year to support claims.
6. Discuss company strategies before and after the 2007–2008 crisis for determining possible reasons for the company’s current financial performance. Provide examples to support your claims.

Overview

Economic risk is referred to as the risk exposure of an investment made in a foreign country due to changes in the business conditions or adverse effect of macroeconomic factors like government policies or collapse of the current government and significant swing in the exchange rates. For example, Sovereign Risk is the risk that a government cannot repay its debt and default on its payments. When a government becomes bankrupt, it directly impacts the businesses in the country. Sovereign Risk is not limited to a government defaulting but also includes the political unrest and change in the policies made by the government. A change in government policies can impact the exchange rate, which might affect the business transactions, resulting in a loss where the business was supposed to make a profit.

Economic exposure can be mitigated either through operational strategies or currency risk mitigation strategies. Operational strategies involve diversification of production facilities, end-product markets, and financing sources, since currency effects may offset each other to some extent if a number of different currencies are involved. Currency risk-mitigation strategies involve matching currency flows, risk-sharing agreements, and currency swaps. Matching currency flow means matching cash outflows and inflows with the same currency, such as doing as much business as possible in one currency, including borrowings. Currency swaps allow two companies to effectively borrow each other’s currencies for a period of time.

https://www.wallstreetmojo.com/economic-risk/