Question: Risk Management Applications

While there are many factors that lead to an organization''s success or failure, it is important to identify the risk associated with the endeavor-financial or nonfinancial. Once the risks have been identified, management has a responsibility to develop measures to mitigate those risks.

Tasks:

Use the publicly-traded company you chose in M1 Assignment 3 and imagine it has made a strategic decision to start doing business in China. Using the discussion on page 192 of your textbook as a template, do the following:

1. Develop a brief country risk assessment.

2. Determine the political, economic, social, and capital risks associated with doing business in China. What are the most important factors to consider? Why?

3. After years of keeping the Yuan pegged to the US dollar, the Chinese have recently allowed it to float freely in international currency exchange rate markets. Many economists believe that keeping the Yuan pegged to the US dollar has caused it to be undervalued by 30 to 50 percent. Discuss what impact a revaluation of the Yuan might have on US multinationals doing business there, on China's exports, and on Chinese citizens' standard of living. What impact would a revaluation have on Chinese inflation and on purchasing power parity? Explain.