Country Risk in Rio Tinto's Investment in Mongolia

Running head: FINANCE FOR INTERNATIONAL BUSINESS
Finance for International Business
Name of the Student
Name of the University
Author’s note

FINANCE FOR INTERNATIONAL BUSINESS1
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Political risk...............................................................................................................................2
Blocked funds.............................................................................................................................2
Changing tax laws......................................................................................................................3
Public revolt against the firm and changing attitude of the host government............................3
Financial risk factors..................................................................................................................4
Inflation and GDP......................................................................................................................4
Labour costs and exchange rates................................................................................................5
A broad discussion of incorporation of Country Risk into the capital budgeting decision.......6
Conclusion..................................................................................................................................6
References..................................................................................................................................8

FINANCE FOR INTERNATIONAL BUSINESS2
Introduction
The report has the objective of bringing about a research regarding a Foreign Direct
Investment (FDI) of an Australian company. For this assignment, Rio Tinto’s investment in
the Copper project of Mongolia has been chosen. The research is narrowed down to a point
and is mainly focussed on the country risk that is involved in the investment. The paper
revolves around two important risks that can be discussed in this context. These two risks are
political risks and financial risks. Under political risks the possibility of risks coming from all
these items are discussed. The items included are blocked funds, changing tax laws, public
revolt against the firm, war and the attitude of the host government towards Multinational
Corporation which has changed recently. Under financial risks the important risk factors
include interest rates, growth of GNP, inflation, exchange rate and the costs of the labours.
Discussion
Political risk
Rio Tinto Company has worked with the Government of Mongolia in association with
Turquoise Hill Resources for the development of a copper-gold mining project where one of
the highest and largest quality of copper will be extracted (Jackson, 2015). The company has
decided to contribute a fair share to the local as well as to the national economy of the
country which also includes transparency in taxes. However, there are still certain risks which
are required to be considered by Rio Tinto in carrying out this investment of copper mines in
Mongolia (Jackson, 2015). One of such important risk factors is the political risk of the
country of Mongolia.
Blocked funds
The political debate that is going on within Mongolia has raised tensions in the
country and is also likely to affect Australia’s biggest source of foreign direct investment