Interest Rate Differentials and Political Risk

Robert Z. Aliber

Chapter 7. in Exchange Risk and Corporate International Finance, 1978, pp 82-89 from Palgrave Macmillan

Abstract: Abstract Political risk is customarily associated with the expropriation of local branches of foreign firms by the host-country governments, usually with inadequate compensation, mostly within developing countries. Consequently, many firms prefer to borrow locally to finance their foreign subsidiaries to minimise their exposure to losses from expropriation; they anticipate that if a subsidiary is expropriated, its new owners would be obliged to repay its debts, and the parent firm would be free of any remaining financial obligation. A second, less dramatic concern with political risk involves changes in exchange controls — firms are concerned about host-country constraints on the payment of dividends and the repayment of capital;1 they want to ‘get their money out’ as soon as possible.

Keywords: Interest Rate; Exchange Control; Foreign Firm; Exchange Risk; Political Risk (search for similar items in EconPapers)
Date: 1978
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DOI: 10.1007/978-1-349-03362-1_7

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