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Country Risk Ananlysis - Research Paper Example

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Country Risk Ananlysis

Some risks can be diversified away through investing in portfolios of investments which diversify each other’s risk. The risk that can be diversified away is called diversifiable risk or unsystematic risk. On the other hand systematic risk cannot be diversified and is thus also called un-diversifiable risk. Economic and political risk is inherent risks of operating in a country. The economic risk is the risk that economy of that country would change for the worse. This change could be due to bad management or uncomprehend able natural causes, such as reduction in oil prices for a country which has oil as its primary export. Political risk on the other hand points towards the stability in the country. This is the risk that there would be political turmoil in a country which would result in loses on investment. The recent changes in the Arabian Peninsula are changing the shape of Arab politics for ever. There have been major political changes in countries like Egypt, Libya and Syria. These political changes would in due course of time bring positive changes in the region and contribute to the economic stability and wellbeing of local. However these changes have also created a sense and environment of uncertainty in the political environment of the region. There is confusion as to which country would be affected by this political upheaval next. Amongst this political turmoil lies a country of 1.7 million people known as Qatar. The State of Qatar is located in the Middle East and shares its borders with the Gulf and Saudi Arabia. The country is a monarchy controlled by the Al Thani family. Other monarchies in the region are threatened by political upheavals; Qatar is no different due to its political system. However Qatar is still a peaceful country and there have been no apparent signs of any political upheavals. One of the reasons is the sound economic situations of the country. The economy of Qatar is growing rapidly and is considered one of the fasted growing economies of the world. The nation has a per capita annual GDP of 97,000 dollars, which is one of the highest in the entire world. The nation is rich with oil and gas reserves. However instead of simply consuming these resources like many other Arab nations, Qatar has strived to build itself as a strong economic power through development of infrastructure and industry. The economic growth is stable due to a strong inflow of foreign capital due to oil exports. This stability plays a primary role in reducing the financial risk of the country. The purchasing power parity of Qatar according to CIA Fact-book is estimated to be $123 billion. This is an increase of approximately 20% from previous years. Due to a rick economy the locals are not an active part of the country’s workforce. However efforts are being made to bring about a change in this department. The main hindrance in these efforts is the availability of an excellent social welfare system, which allows people to leave lives near 0 % present of poverty. This can be seen by the high per Capita GDP of Qatar which makes it one of the richest nations in the world. The country risk of Qatar has been defined as CRT-3. Risk tier 3 is defined as Developing legal environment, legal system and business environment with developing capital markets; developing insurance regulatory structure. This means that the country has very low economic risk. This low risk is due to the rapid growth of GDP ...Show more

Summary

There is strong relationship between risk and return in finance. In fact most financial theories and assumptions are based on the relationship between risk and return. In very simple financial theory as the risk of an investment increase so does the expectation of return from that entity…
Author : jermain89
Country Risk Ananlysis essay example
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