Country Risk Analysis and Managing Cries Assignment 2022

Running head: COUNTRY RISK ANALYSIS 1
Country Risk Analysis and Managing Crises: Tower Associates
Name
Institution

COUNTRY RISK ANALYSIS 2
Country Risk Analysis and Managing Crises: Tower Associates
The data presented reveals the presence of multiple price rigidities that may hinder the
market force indicators from revealing the most accurate economic status of the country. As
Susan Brede makes the decision of exploiting the investment opportunities availed in foreign
economies, she must put into consideration the effects of currency crisis, financial crisis and the
foreign debt crises of the targeted economies as critical indicators of the true economic statuses
of the targeted countries. Arnold and Yildiz (2015) explain that as opposed to the assumptions of
convenience made when undertaking foreign investments, currency crises may not be adequately
put into perspective when underscoring a particular exchange rate regime. On the other hand, not
all decisions made to float or devalue a country’s rates could be heralded by speculative attacks.
However, Sajid, Zhang and Khan (2016) reveal that the central banks of these countries could
institutionalize successful defense mechanisms to cushion their currencies by making use of their
international reserves as a strategy of tackling the shocks imposed by the foreign exchange
markets. Therefore, Susan Brede must investigate whether the targeted economies have
incorporated policies by studying their political incentives and the constraints imposed on their
economic policy formulations.
Financial crises act as a significant indicator of price rigidity and hindrance to the
revelation of the most accurate information of the economic position of a country. According to
Stock and Watson (2016), financial crises impose great regressions in the levels of economic
growth which result in a sinking per capita income. However, the researchers reveal that such
effects are least felt among countries that present with higher population growth rates. From the
perspective of a macro-economist, the situation manifests through mounting trade deficits,

COUNTRY RISK ANALYSIS 3
reducing currency reserves, devaluation of currency, heightened inflation, soaring deficits in
public budget and higher levels of indebtedness.
Lastly, the country’s debt crisis affects its economic position through a commensurate
loss in the levels of investor confidence, and instabilities in the systemic finance. According to
Aydın, Esen and Bayrak (2016), debt crisis occurs in a particular country in instances where
investors lose faith in their potencies of making payments due to the prevailing social, economic
and political challenges. As such, the affected country suffers adversities associated with
inflation and increased rates of interest. Therefore, Susan Brede must investigate the debt crises
depicted by the countries of target before making investment decisions.
Domestic and Economic Situation of each Country Relative to Benchmark Performance
Measures Adopted
Country A
Country A goes to record as a developed economy whose growth is supported by the
national government through effective balancing of expenditures and GDP. As such, the country
maintains an ample fiscal budget. However, country A’s domestic private investment as a
fraction of its GDP is a bit weak. Similarly, the state suffers high inflation despite the modest
growth experienced in its money supply growths.
Country B
Despite its position as a large industrial economy, country B has experienced volatile
performances in the last decade. However, the economy boasts of its vast natural resources
which have supported the nation’s pursuits of becoming a diversified competitive economy.
Similarly, the economy’s private business investment has advanced as a percentage of its GDP.
The political environment in B has acted as a great deterebnce to its growth prospets.