Chapter 2 Case Study – Country Risk

| March 13, 2016

Chapter 2 Case Study – Country Risk
Although Chavez died after a long battle with cancer in 2013, the economic and political situation remain the same in Venezuela.

Read the Country Focus on Chavez’s Venezuela in your textbook (page 49 in the 7th edition, page 42 in the 8th edition), then answer the following questions:

(Also read
Venezula after Chavez http://www.cnbc.com/id/101219760 (Links to an external site.)

Now for the Reckoning – Background information about Chavez and his role in Venezuelahttp://www.economist.com/blogs/americasview/2013/03/venezuela-after-ch%C3%A1vez (Links to an external site.))

Here is a recent article about the post Chavez conflict in Venezuela http://time.com/venezuela-brink/

(You should be able to read individual articles from Economist and Time magazines. Let me know if you have difficulty having access to these websites)

1. Under Chavez’s leadership, what kind of economic system is being put in place in Venezuela? How would you characterize the political system?
2. How do you think that Chavez’s unilateral changes to contracts with foreign oil companies will impact upon future investment by foreigners in Venezuela?
3. How will the high level of public corruption in Venezuela impact future growth rates?
4. Currently, Venezuela is benefiting from a boom in oil prices. What do you think might happen if oil prices retreat from their current high level?
5. In your estimation, what is the long run prognosis for the Venezuelan economy? Is this a country that is attractive to international businesses?
6. In general, what type of political, economic and legal systems are most supportive of international business activity?

Based on the information that you learned in this chapter, also answer the following:

You are the CEO of a company that has to choose between making a $100 million investment in either Russia or Poland. Both investments promise the same long-run return, so your choice of which investment to make is driven by considerations of risk. Assess the various risks of doing business in each of these nations. Which investment would you favor and why?

Use data from the following websites to support your answers:

http://www.buyusa.gov/poland/en/doing_business_in_poland1.html (Links to an external site.)

The CIA’s World Factbook https://www.cia.gov/library/publications/the-world-factbook/ (Links to an external site.)

Transparency International’s corruption ranking and general perspectives of these countries go tohttp://www.transparency.org/country (Links to an external site.)

http://www.doingbusiness.org/data/ (Links to an external site.)

http://www.doingbusiness.org/rankings (Links to an external site.)

The Index of Economic Freedom http://www.heritage.org/index/ (Links to an external site.)

Country Rankings http://www.heritage.org/index/ranking (Links to an external site.)

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