Project Finance and Procurement: Risks Associated with Investment Decision

This report discusses the risks associated with project finance and procurement from an investment decision perspective. It covers business risk, volatility risk, inflation risk, and currency risk. The report also evaluates the role of three agreements in managing the risk.

Project Finance and
Procurement

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
Discuss the risks linked to the project provided in case study....................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Project finance refers to the loan structure that depends on the cash flow of the company
for making repayment of the assets and interests. This amount is availed by business for
arranging funds for the business so that the company can carry on its work or can fund its
project. It is very important for procuring big projects which are difficult for the companies to
fund through their own investment. The report is based in the case study. There are two questions
in the case study. The first one discusses about the risks associated to the project provided in the
case study along with discussing about the different types of risks that can be mitigates and the
party managing it. The second question evaluates the three agreements role in managing the risk
from project finance perspective. It also discusses the reasons behind the fact that EFC should
made investment in this project along with the cause of not investing in it.
Question 1
Discuss the risks linked to the project provided in case study.
Risks from the financial perspective, is the degree of uncertainty or loss that is linked to
the investment decision. With the rise in this risk, the expectation of investor about its returns
also increase. The investor is ready to take higher risk only if it expects that the proposal holds
the power to generate higher revenue. All the investment opportunities has their own risks and
benefits. Here are the risks associated with these projects.
 Business Risk – It relates to the existence or longevity of the business. The returns on the
investment will be received by the investor only if the firm is going on. If the firm got
bankrupt then the business would be liquidated and all assets would be used to pay debts.
Shareholders would receive amount only if there is only amount left after this payment.
Thus, before investing in any company, one must check out the position, profitability and
position in market.
 Volatility Risk – The shares price of companies keeps changing. The stock price can be
affected by the factors in the company like the wrong product or the events that cannot be
controlled like market or political events. These changes directly impacts the functioning
of the firm. The political environment of Argentina is unstable, the laws under this
changes regularly which will directly affect the investors return.

 Inflation risk – It is the increase in the prices of the shares of the company. This increase
in inflation results in the decrease in the disposable income and thus a risk for the
investors who receives a fixed rate of interest.
 Currency risk – The change in the value of currency directly affects the value of
currency and thus affects the return of the company. Many times people loose their
money because of the negative change in the value of currency. When dealing with other
countries this risk change and becomes wider. Countries normally desire that the opposite
nation should make payment in their currency.
Apart from this, there are many other risks associated with this finance procurement for
project.
CONCLUSION

REFERENCES
Books and Journals