Answer: Alpha Corp., a rice manufacturer based in Pakistan, suffered losses when the U.S. Department of Commerce decided to impose tariffs on the import of paddy rice to avoid competition for the domestic industry.
Explanation:
Here is the complete question:
Which of the following situations is an example of country risk?
A) Fiesta Corp. is an automobile manufacturer based in the U.S. The company's negotiation attempts with China to open a manufacturing factory in Beijing failed owing to cultural differences.
B) Frostees Inc. is a food and beverages company based in the U.S. Its attempt to set up an outlet in Thailand failed primarily owing to a misinterpretation of the memorandum of understanding by a potential business partner in Thailand.
C) Alpha Corp., a rice manufacturer based in Pakistan, suffered losses when the U.S. Department of Commerce decided to impose tariffs on the import of paddy rice to avoid competition for the domestic industry.
D) Tamiaz LLC is a U.S. based manufacturer of clothing with outlets in China, Vietnam, and India. The company incurred a loss due to delayed payments from India owing to fluctuations in the currency exchange rates.
Country risk is the political, economic, and business risks which are unique to a specific country, and may lead to unexpected investment losses. Country risk involves the risk of investing in a country, which is as a result of possible changes that may occur in the business environment which can adversely affect the profits or the asset value in the country.
In the options given above, Alpha Corp., a rice manufacturer that is based in Pakistan, suffered losses because the United States Department of Commerce imposed tariffs on the import of paddy rice so as to avoid competition for the domestic industry is an example of country risk. The risk led to investment losses for Alpha Corporations.
