Question

Your company, which transports medical equipment to emerging nations, is conducting a political risk analysis before signing a contract to transport equipment within a South American country.

1. Which of the following findings in the political risk analysis would indicate that the company should NOT sign the contract?
a. Potential nationalization of invested assets
b. Devaluation of the country's currency
c. Uncertain prices for critical commodities
d. High government debt

Answer 1

The transports medical equipment to emerging nations, is conducting a political risk analysis before signing a contract to transport equipment within a South American country for the following reason which is,

b. Devaluation of the country's currency

Step-by-step explanation:

• In devaluation of the country's currency, the monetary authority formally gets a lower exchange rate out of the national currency in contrast to the foreign currency's reference.
• Company which transports medical equipment to emerging nations, which conducts a political risk analysis before signing a contract to transport equipment within a South American country, findings in the political risk analysis would indicate that the company should NOT sign the contract because of the Devaluation of the country's currency.
• A country devalues its currency can impact on its deficit because of the high demand of cheaper exports.
• Countries uses it devaluation of currencies as to achieve economic policy.
• The weaker currency compare to the rest of the world can really increase exports, reduce trade deficits and also reduce the cost of interest payments.