Explain 3 economic risks if a business is considering investing into the Hong Kong economy at this present time.
Types of economic risks:
Economic risk refers to the possibility that macroeconomic situations may affect an organization's forecasts domestically or abroad. Economic risks are often the most difficult risks to the project.
Answer and Explanation:
In Hong Kong, the economy is currently undergoing a recession period. Therefore, when one wants to invest in a foreign country, for instance, Hong Kong, economic risk is difficult to expect and predict. With no financial risk managing strategy, businesses, their profit benefits and the business's growth are put at risk. The types of economic risks a firm should consider investing in the Hong Kong economy are:
- Cost of materials. An increase in the cost of raw materials is a factor that an organization should identify and control. In highly competitive markets and the cost of materials increase, profits tend to go down as consumers are forced to pay high prices.
- Market prices. A nation's economy determines its market prices. Where production costs remain high, and its market prices fall, the profits tend to fall, and thus a business will not invest in Hong Kong.
- Taxes. In Hong Kong, the government introduces new taxes that threaten an organization's profits. This is because new taxes negatively affect an organization's financial performance.
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Learn more about this topic:
from Finance 305: Risk ManagementChapter 3 / Lesson 3