RMI 2302 Lecture 14: RMI Module 14 Notes
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Department
Risk Management/Insurance, Real Estate and Legal Studies
Course
RMI 2302
Professor
Dr.Charles Nyce
Semester
Spring

Description
RMI Module 14 Notes - Overview o Economic analysis of potential international expansion (supply or demand side) does not take into account political risk o Understanding the political context is vital to success o Political risk- impact of politics on markets ▪ Passage of time ▪ Foibles of leaders ▪ Risk of popular movements ▪ All factors that may stabilize or destabilize a country o Time frame of political risk is important ▪ Hedge fund vs. chemical plant location o Political Risk Analysis ▪ More subjective than economic risk analysis ▪ Broad observable trends ▪ Nuances of society and quirks of personality - Political Risk Analysts o Internal ▪ Royal Dutch/Shell ▪ AIG o External ▪ Consultants ▪ AON - Why do we need political risk analysis? o 1. International markets more interconnected than ever before o 2. The US is making the world a more volatile place (Bush Era) o 3. Offshoring trend is growing o 4. Increasingly reliant on energy from political risk states- Saudi Arabia, Iran, Nigeria, Russia, Venezuela - Difference between Economic and Political Analysis o 1. Economic Analysis- “Can a particular country pay its debt?” o 2. Political Analysis- “Will a particular country pay its debt?” - Political Risk- Unit of Measure o Stability ▪ Two factors • Strengthen against shocks • Shocks themselves - Strength Against Shocks o Can political leaders implement policies in spite of shocks that occur o Can they avoid policies that actually create shocks? o Countries that can avoid creating shocks and ride out those that do occur are the most stable with regard to political risk - Shocks o Internal ▪ Demonstrations in Egypt = Arab Spring ▪ Transfer of power = Cuba, Elections, Obamacare o External ▪ Refugee influx ▪ Tsunami ▪ Terror campaign - Stability and response to shocks o Example: Election results that are challenged and ultimately decided by court ruling ▪ 2000: US ▪ 2003: Taiwan ▪ 2004: Ukraine ▪ Which two of these led to streets being closed off by protestors and threats of violence - Stability and Openness o US vs. Cuba ▪ Both considered “stable” ▪ One is open, one is closed ▪ Transition from on
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