Companies and Banks such as the United States Merchant Bank use country risk analysis to assess various categories of risks for their businesses. Typically, there are always a number of factors which determine the overall risk for investments: Political, economic, financial, external, and the investment climate to name a few. Often these are weighted to reflect the risks for any particular project. Similarly, the questions posed in conducting the analysis also take into account the project's particular requirements. A sampling of typical questions is included below:

· Is the political environment stable?

Unlike many of its neighbours in Asia, such as Indonesia, China's economic and political prospects appear positive.With a composite country risk rating of 68 and economic risk rating of 42., as long as advances keep being made in the areas of developing a legal and regulatory infrastructure, sound foreign investment policy, and state-owned-enterprise reforms, it is recommended that lending to China resume, with the proviso of caution. With a composite country risk of 62 and economic risk of 40, it is advisable to resume lending to Malaysia on the proviso of extensive risk indices being continually monitored.

In line with the rest of the Asian region, Malaysia has been adversely affected by the regional economic and financial crisis. Daredevil Investment Trust Corporation anticipated the crisis in Malaysia and accordingly, did not incur heavy losses on its lending to Malaysia. This is in sharp contrast to the last five years in Malaysia when real GDP growth expanded some 8.7% on average between 1993 and 1997. Over the last two years the economy has witnessed a sudden and sharp contraction. For three successive quarters real GDP growth has contracted by 2.8%, 6.8% and 8.6% respectively, bringing the decline so far to 6.1%

Shapiro, A.C(1999) Multinational Financial Management, (5th Edn).Prentice Hall : New Jersey.

Political risk assessment scores would be based on subjective analysis of available information. Economic risk assessment would be based on objective analysis of quantitative data and financial risk assessment scores would be based on analysis of a mix of quantitative and qualitative information. Calculation of the three individual indices would be a matter of summing up the point scores for each factor within each risk category. The composite rating is a linear combination of the three individual indices' point scores. An interesting point to note is that with a lot of providers the political risk measure is given twice the weight of financial and economic risk. This is because many providers of country risk analysis think of country risk as being comprised of two primary components: ability to pay and willingness to pay. Political risk is associated with a willingness to pay while financial and economic risk are associated with an ability to pay.

· How receptive is the foreign investment climate?

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Approximate Word count = 2466
Approximate Pages = 10 (250 words per page double spaced)