1.

Political risk : it transpires when a country's government unexpectedly changes its

policies, which now negatively affect the foreign company. These policy changes can
include such things as trade barriers, which serve to limit or prevent international trade.
Some governments will request additional funds or tariffs in exchange for the right to
export items into their country. Tariffs andquotas are used to protect domestic
producers from foreign competition.
2. Exchange rate risk : When a domestic currency appreciatesagainst a foreign currency,
profit or returns earned in the foreign country will decrease after being exchanged back
to the domestic currency. Due to the somewhat volatile nature of the exchange rate, it
can be quite difficult to protect against this kind of risk, which can harm sales and
revenues.
3. Economic risk : it is the risk associated with a countrys financial condition and ability to
repay its debts. Economic indicator movements in the foreign country such as GDP,
unemployment, purchasing power, inflation, etc. are important measurements for
economic risk.
4. Country risk : The culture or the instability of a country may create risks that may make
it difficult for multinational companies to operate safely, effectively, and efficiently.
Some of the country risks come from the governments' policies, economic conditions,
security factors, and political conditions
5. Market risk : Competition in international business is severe market conditions change
frequently. It may not be possible for a firm to compete in international markets.
6. Operational risk : This is caused by the assets and financial capital that aid in the day-to-
day business operations. The breakdown of machineries, supply and demand of the
resources and products, shortfall of the goods and services, lack of perfect logistic and
inventory will lead to inefficiency of production.
7. Financial risk : This area is affected by the currency exchange rate, government flexibility
in allowing the firms to repatriate profits or funds outside the country. The devaluation
and inflation will also impact the firm's ability to operate at an efficient capacity and still
be stable.

Features of International Finance
1. Foreign exchange risk
2. Political risk
3. Expanded opportunity sets
4. Market imperfections

Foreign exchange risk: In a domestic economy this risk is generally ignored because a
single national currency serves as the main medium of exchange within a country.
When different national currencies are exchanged for each other, there is a definite risk
of volatility in foreign exchange rates.
The present International Monetary System set up is characterised by a mix of floating
and managed exchange rate policies adopted by each nation keeping in view its
interests.
In fact, this variability of exchange rates is widely regarded as the most serious
international financial problem facing corporate managers and policy makers.
Political risk : Political risk ranges from the risk of loss (or gain) from unforeseen
government actions or other events of a political character such as acts of terrorism to
outright expropriation of assets held by foreigners.
For example, in 1992, Enron Development Corporation, a subsidiary of a Houston based
Energy Company, signed a contract to build Indias longest power plant. Unfortunately,
the project got cancelled in 1995 by the politicians in Maharashtra who argued that
India did not require the power plant. The company had spent nearly $ 300 million on
the project.

Expanded Opportunity Sets : When firms go global, they also tend to benefit from
expanded opportunities which are available now.
They can raise funds in capital markets where cost of capital is the lowest.
The firms can also gain from greater economies of scale when they operate on a global
basis.
Market Imperfections : domestic finance is that world markets today are highly
imperfect
differences among nations laws, tax systems, business practices and general cultural
environments.
International Business Methods
1. Licensing : Licensing involves selling copyrights, patents, trademarks, or trade names or
legal rights in exchange for fees known as royalties. Thus a company is selling the right
to produce their goods. Licensing allows firms to use their technology in foreign markets
without a major investment in foreign countries and without the transportation costs
that result from exporting.
2. Franchising : Under a franchising agreement the franchisor provides a specialized sales
or service strategy, support assistance, and possibly an initial investment in the
franchise in exchange for periodic fees. Franchising allows firms to penetrate foreign
markets without a major investment in foreign countries.
3. Acquisition of existing operations : Firms frequently acquire other firms in foreign
countries as a means of penetrating foreign markets. Acquisitions allow firms to have
full control over their foreign businesses and to quickly obtain a large portion of foreign
market share. An acquisition of an existing corporation is a quick way to grow. An MNC
that grows in this way also partly protects itself from adverse actions from the host
government of the acquired company.
4. Establishing new foreign subsidiaries : Firms can also penetrate foreign markets by
establishing new operations in foreign countries to produce and sell their products. Like
a foreign acquisition, this method requires a large investment. Establishing new
subsidiaries may be preferred to foreign acquisitions because the operations can be
tailored exactly to the firm's needs.
5. Exporting : Exporting is the direct sale of goods and / or services in another country. It is
possibly the best-known method of entering a foreign market, as well as the lowest risk.
It may also be cost-effective as you will not need to invest in production facilities in your
chosen country all goods are still produced in your home country then sent to foreign
countries for sale. However, rising transportation costs are likely to increase the cost of
exporting in the near future.
6. Foreign direct investment : Foreign direct investment (FDI) is when you directly invest in
facilities in a foreign market. It requires a lot of capital to cover costs such as premises,
technology and staff.
Wholly owned subsidiary : money goes into a foreign company but instead of money
being invested into another company, with a WOS the foreign business is bought
outright. It is then up to the owners whether it continues to run as before or they
take more control of the WOS.
Joint Venture : A joint venture consists of two companies establishing a jointly-
owned business. One of the owners will be a local business (local to the foreign
market). The two companies would then provide the new business with a
management team and share control of the joint venture.
Strategic Alliance : Strategic alliance is a cooperative and collaborative approach to
achieve the larger goals.
1. Many complicated issues are solved through alliances.
2. They provide the parties each others strengths
3. Helps in developing new products with the interaction of 2 or more
industries
4. Meet the challenges of technological revolution
5. Managing heavy outlay
6. Become strong to compete with a multinational company
7. Management contract : A mgmt contract is an agreement b/w 2 companies whereby
one company provides managerial assistance, technical expertise and specialized
services to the 2
nd
company for a certain period of time in return for monetary
compensation. E.g. schools, sport facilities, hospitals, office buildings, restaurants .
8. Turnkey projects : a turnkey project is a contract under which a firm agrees to fully
design, construct and equip a manufacturing/business/service facility and turn the
project over to the purchaser when its ready for operation, for a remuneration.