Finance related to china and jordan political risk - Assignment Example

China and Jordan Political Risk China and Jordan Political Risk Political risk is the risk of a multinational corporation’s host country making decisions that will negatively affect the profits and goals of the multinationals (Political risk services (IBC USA, 1999, p.3). Political risks fall into two categories depending on the extent of the impact on the multinational corporations operating in the country affected. Macro political risk is negative impact of the adverse decisions by the host country on all foreign firms in the country while micro political risks involve the negative impact of a host country’s decision on the foreign firms in a given sector or industry (Moran, 2004, p. 14). This paper aims at comparing the corruption price index rating of China and Jordan, reasons for the differences, and issues that create these differences, a rating of political risks of Chin and Jordan, examples of political risks on all countries, and potential drawbacks, and ways to hedge against risk.

Corruption percentage index in Jordan is at 45 a decline from the 2012 rating of 48 while China’s corruption percentage index is at 40 showing that it increased from a rating of 39 in 2012 (Transparency International., 2014). Both countries were downgraded in the latest corruption percentage index owing to some factor that necessitated this action by Transparency international. The corruption price index differ by 5 points that that of Jordan being higher than in China and this can be explained by some reasons including a deterioration in political risk in China owing to increased political violence, slowing of the growth of the economy, and nationalism of resources.

In Jordan, the differences is as a result for the lowering of corruption percentage index are fighting in Syrian that have led to the influx of refugees into Jordan leading to the domestic shocks on the Jordan economy and domestic strain on the economy owing to insecurity (Intelligence Quarterly, July 22, 2011). The issues that this could create are a reduction in foreign investment in the two countries as well as a reduction in the economic growth of the country. The other issues that could be created by increased political risk I inability of the county to attract new investments and investments by local investors in other countries with a high corruption percentage index.

Generally, the political risk in China is low while in Jordan it is high. Examples of political risk in Jordan include the 2011 protests that rocked the country. There have not been enough reforms as agreed in 2011, as a measure to end the protests resulting in an increase in tension between the government and the Islamic Action Front, which is the leader of the opposition (Aon, 2014, p. 7). There are also contentions in the Palestinian participation in government that have led to a high general rating of high political risk in Jordan.

In China, there have been some political unrest, social tensiosn but have not been aimed at foreign investment and were mainly aimed at land issues, and other social factors, hence did not affect the political risk of China. Even though political risk is low in China there is very low transparency in trade making trade to for local firms as opposed to multinational corporations. The available hedging opportunities for foreign companies in political risky countries is working in collaboration with their home countries to push these countries to open the economy especially China that employs nationalism, institute rules that govern trade and enforce them, and provide protection of intellectual property rights (Bremmer & Zakaria, November 2006).

Balancing risks in one hedge fund, buying bonds from emerging markets, and holing bonds and stocks in the home country are the other hedging strategies. Adhering to corporate responsibility in home countries, aids in making these foreign forms avoid reputational risks when they operate in politically risk countries. The other hedging strategies include use of foreign bank guarantees, collections, and use of letters of credit. However, the hedging strategies are faced by drawbacks including difficulty in assessing the dynamic economic environment and difficult political environment affecting the ability of these risks to affect businesses and a reduction in the hedging funds owing to increased rates of losses from political risk in recent years.

ReferencesINTELLIGENCE QUARTERLY. July 22, 2011. Jordan financial/political risk summary. Intelligence Quarterly.Retrieved on 27 May, 2014 from http://www.intelligencequarterly.com/2011/07/jordan-financialpolitical-risk-summary/TRANSPARENCY INTERNATIONAL. (2014). Corruption remains a global threat. Retrieved on 27 May, 2014 from http://www.transparency.org/cpi2013/resultsAon. (2014). Aon’s 2014 Political Risk Map Aon’s guide to Political Risks in Emerging Markets. London: Devonshire. BREMMER, I.

& ZAKARIA, F. (November 2006). Hedging Political Risk in China. Havard Business Review. POLITICAL RISK SERVICES (IBC USA (PUBLICATIONS) INC.). (1999). Political risk yearbook. Volume 5, Volume 5. East Syracuse, NY, PRS Group.MORAN, T. H. (2004). International political risk management the brave new world. [Washington, D.C.], World Bank.