CoRA: Country Risk Analysis
You have to decide either you invest in a risky option or not. If you call for the suggestion from the theory of finance, it will answer you to be rational. How one become rational without calculating and comparing risk factors!
There are a lot of factors. Among them one important parameter is country risk. This is a very much uncertain risk factor that can be altered anytime with the changes of situations.
A great example may be this covid-19 situation. The countries that we considered low risk and investment friendly is now
becoming very risky for the changing situation after the attack of corona. Many stable economies have been vibrated. A number of well renowned companies have been collapsed or to be.
It is not only an alarm, but also a lesson for the investors. They are now supposed to think again about their previous strategies.
Before these discussion, we discuss at a glance about Country Risk Analysis (CoRA). Earlier, we considered the following factors to determine CoRA:
- Terrorist attack
- Labor strike
- Political crisis
- Countries banking system
- Trade restrictions
- Government policies
- Strength of local currency
- Fund transfer blockage
- Attitude of consumers in the host country and so on.
Types of CoRA
There are two major types of CoRA as follows:
- Macroassessment: It calculate the overall risk assessment of a country with including internal and external factors.
- Microassessment: The risk assessment of a country that’s are related with the business types on which you want to invest. It may be called Relative CoRA.
Techniques to assess CoRA
- Checklist approach
- Delphi technique
- Inspection visit method
- Quantitative analysis
- Combined method
Incorporating CoRA in Capital Budgeting
If the country risk of a certain area remain in the acceptable ranges, a financing decition related to that geographical area deserves further consideration and analysis. Then CoRA is to be incorporated in the capital budgeting analysis by adjusting the discount rate or estimated cash flow.
Implicit Limitation of CoRA
Likewise other risk factor assessments, CoRA is also to be assumed rather than perfectly calculated.
So the predictions may be in vain. Imagine, any investor would be able to predict one years back or half about the impact of Covid-19 in the countries. Was it really possible?
There are many other uncertainties. Head of the countries are being changed rapidly and instantly, may be that country haven’t any experiences of such incumbent. So how will you assess this risk?
Crypto based investments in most of the formats are non-geo. It may be termed as borderless finance. When you decide to do job in these block-chains like Hive.blog on invest in crypto currencies, you must not be bothered about the CoRA. It has been created a great opportunity for us to avoid CoRA
Crypto Finance: Sustainable Financing
According to the major theory about “Risk vs Return”, it is clear that crypto based financing is preferable than any others. It is indifferent against geo location. It have many other factors favoring to choose but today I only concentrated on CoRA.
It is a partial judgement. But it is not irrelevant. Thanks a lot for reading this article.
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