Chapter 6 Class Lecture (Chapter 5 in book) Flashcards
What are different types of risks?
Economic, financial and currency risk, taxation risk, security, legal/administrative, and political
What are the two classifications for political systems?
Authoritarian and democratic
What are the rules of law?
Primacy of laws over the will of individuals, including both rules and ruled
What is civil society?
Volunteer groups representing cultural, religious and political diversity within society
What is Morrison’s definition of political risk?
Uncertainties associated with location and exercise of power within country and from the forces outside its borders.
How does Professor Blake define political risk?
The risk or probability of occurrence of some political event that will change the prospects for the profitability of a given investment.
What is regular uncertainty?
Uncertainty where one can can attach probabilities to outcomes
What is objective uncertainty?
Uncertainty where all feasible outcomes are known, information is available, agreement is made upon probabilities, and no occurrence is more dominating.
What is bounded subjective uncertainty?
Uncertainty where all possible outcomes and probabilities are not known and all that is available are opinions as to the most important outcomes and the relative likelihood of occurrence.
What are internal political risks?
Actual and potential social unrest, personalized power centers, conflicting factions within government, fragile coalition government
What are international risks?
Insecure borders, military invasion, threat of terrorism, global imbalances in international relations, dispute with trading partners, spillover of regional conflicts, disputes with neighborhood countries, and insecurity of energy and natural resources.
What are four types of political risks?
Ownership, transfer, operating and economic.
What are ownership risks?
Nationalization - (domestication), government takes control of some or all of the enterprises in an entire industry.
Expropriation - a governmental action that dispossess a foreign company or investor (compensation should be provided in a “prompt, effective, and adequate manner)
Confiscation - asset is possessed without compensation
What are reactive approaches?
Redundancy in operations, local hires, and governmental coordination
What are proactive approaches?
Structural (joint ventures), licensing, good relationships with locals, and global integration.
