International investment risk-What is the international investment risk?
International Investment risk is the risk of international investment in a particular environment and specific period of time, due to various uncertainties exist, the objective of international investment projects lead to real income and the expected value of the gap between the international investment or economic loss.
Impact of international investment risk - a major factor
Impact of international investment risk of the main factors are:
1, the investor's decision-making
Investor decision-making right or wrong is not only decided to invest in the project's success and failure, but also determine the size of project benefits. Which country should invest in, what types of projects should invest, how much should be invested, is the impact of international investment risk of the most important factor.
2, the investor's own quality
If the investment decision-making accuracy, but the viability of other investor can not keep up their own quality, it will also lead to the failure of international investment and low efficiency.
3, the investment environment
Impact of international investment environment is another important investment risk factors, should have a good hard environment and soft environment. For example, the host country's policies and laws, infrastructure conditions, the quantity and quality of working conditions and other factors directly affect the international investment income is an important factor.
International Investment Risk - Classification
The type of international investment risk often, people will be the international investment risk divided into two categories: one for the commercial risk, one for the political risk.
1, the business risk
International investment business risk is due to the business environment, business strategy, business investment due to changes in decision-making changes in economic losses. Commercial risks include:
(1) natural risk that unexpected natural disasters, the natural environment caused by mutations in the investment changes in economic losses. For example, in 1972, due to a sudden change in the Western Pacific currents, groups of fish to take a detour, dramatically reducing the Peruvian waters to fishing resources, Japan's Mitsui & Co. to set up a franchise in Peru fish meal, fish oil and other products manufactured and processing companies to bring economic losses. This risk primarily from changes in nature, it is still difficult to control.
(2) foreign exchange risk, also known as exchange rate risk refers to changes in exchange rates caused investors to asset value changes. It is mainly in three aspects: First, foreign exchange risk, foreign exchange transactions, in which changes due to exchange rate risks; Second, foreign exchange risk, that is due to changes in exchange rates between the main international investment occurs when foreign currency settlement risk; third accounting for the risk that due to exchange rate changes so that the value of the assets of the subsidiary and the parent company during the accounting settlement occurred, including assets, liabilities, profits and other changes.
(3) interest rate risk. Interest rate risk refers to the period of time due to changes in interest rates due to international investors the value of assets. It is mainly in the capital raising and the use of the process. Changes in interest rates, including investors in the borrowing and lending activities of interest rate changes, changes in interest rates in different countries, different currencies in different markets and changes in interest rates. The impact of interest rate changes directly affect investors is reflected in its production costs.
(4) operational risks, means goods (including material goods and non-material products) production and sales process, due to market conditions and changes in production technology, the risks posed.
2, the political risk
International investment, political risk refers to the activities of international economic exchanges, and participation in acts of national sovereignty is closely related to the risk, as a result of political factors and the risk of economic losses. Acts of sovereignty, is the country's needs from their own interests are taken without any outside legal constraint behavior. For example, in international loans, when the Government as a guarantor of debt, according to the country's economic needs, to take unilateral action to stop or postpone debt repayment. For example, when the state of hostility between the two countries at war or when the debtor's creditors to freeze or confiscate assets belonging to sovereign risk.
By political factors have led to changes in economic losses of international investment, are:
First, nationalization risk. The host country for various reasons, frequently used items on foreign investment in the confiscation measures, to become national assets. Sometimes, the host country regime change occurs, the new regime does not recognize the old regime's foreign policy, thus bringing the nationalization of foreign capital. Sometimes the host government resents the behavior of investors to take forced confiscation policy.
Second, the host country policies and the risks arising from law. Host country policy and legal risks arising primarily from the host country in order to safeguard national sovereignty or national interests that require protection policies and laws adopted. For example, the establishment of factories in a country's investment, the plant produced by the public favorite, the country's exclusion of similar products. The country to protect their own industries, foreign enterprises limited production side, to increase tax and other policies, which would affect the interests of investors. Sometimes in international loans, some countries have taken to stop or postpone debt repayment and other measures to make the foreign loss.
Third, the transfer of risk. Obtained in the course of economic exchanges in the economic benefits, because the local government's foreign exchange control policies or acts of discrimination can not or repatriation of foreign risk. For example, in the profits generated by foreign investment, selling equity income, international loans and other income or property can not be transferred to a country or other place of safety. Fourth, the risk of war. The risk of war refers to the host as a result of a foreign war or domestic revolution, so that investors deviate from the actual revenue loss or the possibility of expected return. The risk of war than any other risk, the greater the extent of losses.
With the activities of international economic exchanges become more frequent, countries, ethnic cultural conflict is inevitable. Therefore, the international investment activities in addition to the above two categories should consider the risk, we must also take into account cultural differences as potential losses. Cultural risk that in certain circumstances, as between countries, ethnic and cultural differences between international investment losses caused by changes.
In summary, the international investment risk can be divided into three categories. That political risk, business risk and cultural risk. The breakdown of international investment and improvement of risk classification process, is an international investment risk as people gradually deepening understanding. With the deepening of understanding, international investment risk classification will be more perfect.
International investment risk - assessment and recognition
In order to further improve the classification of various international investment risk, in order to control and prevent various types of international investment risks, it is necessary to take a variety of methods, standards, approaches, scientific assessment and identify the various types of international investment risks.
1, the assessment of political risk
Political risk political risk assessment is the first step in prevention. One of the main aspects of the national risk assessment, several commonly used indicators are the following:
(1) debt ratio. The formula is:
Debt ratio =
Then the amount of external debt servicing
× 100%
Then the amount of exports of goods and services
Debt service ratio indicates the ability of a country's external debt. Generally believed that the proportion of 10% or less, a strong ability to repay the state; when the ratio is higher than 25%, are faced with debt problems.
(2) debt ratio. The formula is:
Debt ratio =
Gross national product
× 100%
To all its foreign debt reserve
Debt ratio indicates the size of a country's economic relations with foreign debt, below the 15% better, when above 30%, then the debt is generally believed that the difficulties
(3) of debt to exports ratio. The formula is:
Debt to exports ratio =
All the balance of their public and private debt
× 100%
Then the amount of exports of goods and services
The ratio of molecules, including short-term debt, that is less than 1 year duration of the debt. In developing countries the ratio of total short-term debt escalating situation, this ratio has important implications. Generally believed that the boundaries of the risk ratio of 100 percent.
(4) current ratio. The formula is:
Current Ratio =
Foreign exchange reserves
× 100%
Average monthly imports of foreign exchange expenditure
The current ratio shows that a country's foreign exchange reserves equivalent to the number of months of imports. Generally believed that five months of the current ratio is more adequate, if the rate is less than one month's imports, it is dangerous.
Objective assessment of country risk assessment and microscopic evaluation points. Microscopic evaluation can be used for case studies. Macroscopic evaluation of the potential host country is a general risk assessment, it should consider the main factors: the host country government and investment between the Government and political and economic relations; the host country's foreign policy; the host country's political situation; host country nationals as a whole cultural quality; the host state of mind typical way; host country and the extent of economic development in recent years; the host country market opening; the host country's dependence on imports and exports and so on.
In the country's macro risk assessment methods are used:
(1) country assessment method. Country Assessment Report is mainly used for large-scale construction projects overseas investment or loan decisions, is a specific target country's social, political and economic situation of the comprehensive assessment and feasibility study of similar nature, but its focus is to prevent implementation of country risk.
Country Assessment Report there is no fixed format, countries have different formats. Even within a country, due to the preparation of the agencies involved, there are different formats. In terms of general format, involve these areas:
First, political factors assessed. This is a political risk assessment of the main aspects of the two (one that is above the national risk assessment). The main evaluation of a country's economic capacity and operational ability to adapt to environmental change. Ability of economic operators, including the government's decision-making, policy development, etc.; ability to adapt to environmental change, including the Government of the oil price changes, changes in world economic cycle, changes in the international economic environment, ability to adjust quickly.
Second, political stability assessment, including domestic political stability and security in international politics. Domestic political stability include the change of government is a smooth, continuous and other economic policy can; international political stability, including regional, international political situation is stable and so on. This is a political risk assessment of the three main aspects. In addition, the basic economic elements of the assessment and the assessment of external financial conditions. Economic fundamentals, including a broader scope, such as natural resources, human resources, development strategy, domestic sources of funding, export status, etc.; external financial conditions, including the state of international balance of payments, external debt, foreign exchange reserves, the possibility of borrowing.
(2) score grading method. This is a fixed set of scoring criteria will examine risk factors for the various target countries be measured to determine the risk score method, the entire score rating process is divided into four stages: the first stage, the study identified risk factors, such as debt rate, the number of the war, per capita income, etc.; the second stage, to determine the risk rating criteria. The higher the score the greater the risk of such provisions may be specifically designated as: debt ratio below 10% for 1-2 min, 10-15% 3 15-25% 4 points ,25-50% for 5 minutes, 50-80% is 6 grading; the third stage, the aggregate scores of all projects to determine the level of risk; the fourth stage, the risk of inter-country comparison, to determine the direction of investment.
(3) other assessment methods. In addition to these methods, the assessment of country risk assessment method also list method, Delphi method, quantitative analysis, field survey method and comprehensive law.
All of these approaches, has a rational point and weaknesses in the practical application should be flexible.
2, the assessment of business risk
International investment is an economic activity, will inevitably encounter many commercial risks. Business risk assessment, risk analysis is a key economic factor. The international community generally use the Delphi method, extrapolation and other methods, the first identification of the economic risks. These methods have their own specific operational characteristics, but all methods use a variety of modern technology, brainstorming, and ultimately to obtain more representative of the identification conclusion. After completing the identification of risks, but also for the general risk assessment.
3, recognition of cultural risk
Culture, in short, refers to a social group behavior patterns and values combined. Different countries, different nationalities with different cultural patterns. In international investment and business activities, as multinational operators culture deeply influenced by the mother country, they tend to run through the mother culture in the host country subsidiary management, which may lead to serious cultural conflict, affecting the production and operation, thereby unnecessary losses. Such as countries, ethnic and cultural differences between international investment losses caused by changes in known risk culture.
Recognition of cultural risk analysis is usually the environment. Because risk is by inter-ethnic culture, the cultural differences between countries caused, which requires multinational decision-makers through direct or indirect channels to collect information on host countries in a wide range of cultural background information to the management of the company to appoint as soon as possible to understand investment in the host country's culture and customs of the situation and take a variety of flexible measures to prevent risks in the first place.
In general, understand, analyze the situation of a country's culture, staff from the following areas:
First, the country's history and tradition. If a country's history is more a long, long period of feudal rule, nationals of such countries tend to put a layer of psychological psychological shackles. Long-standing cultural tradition is very easy to form a complete individual, interpersonal, the group of social, ethical, political views. This cultural respect others Lun, light law. In interpersonal relationships, emphasizing compromise, conciliation, not in favor to succeed, not to encourage competition, coming to the fore. In value orientation, praise through the old, conservative, and belittle the spirit of adventure and innovation, which stands for "Valuing Loyalty." In contrast, relatively short history of the country, more inclined to free and open national psychology, have less depression force of habit. Upper and lower levels, between colleagues, like outspoken, articulate self-will, and looking for opportunities to express themselves, take risks, to fail also less likely to have to worry about.
Second, the country's social institutions. A country's social system of the country's culture has a direct impact.
Third, the religious situation. Religion of the people has a profound psychological impact, do not understand the situation of a country's religion, it is impossible to thoroughly understand the situation of the country's culture.
Finally, be pointed out that, despite the different methods, the investors have a different use, but so far, people have not find a perfect way to assess and identify international investment in the business risk, political risk and cultural risks. Some people think that the greater the risk of the investment, its benefits are bound to the higher. Regardless of this notion, one thing is incontrovertible: the thousands of investors who, in particular international investment gurus, in order to explore investment in high efficiency, high rates of return are diligently exploring prevent investment risks. Successful investors are also not free to explore this area and after struggling to find the mystery of the lucky ones.
