The Economics of Money, Banking, and Financial Markets Essay

The Economics of Money, Banking, and Financial Markets - Essay Example Taking into consideration the impact of political, social and economic factors on the establishment and growth of foreign ventures, it is paramount for company directors to ensure coverage of wide areas during the risk analysis process. One of the benefits of risk analysis is that it provides directors with adequate knowhow on goods and services to offer as well as choices of location. In addition, it helps company owners with policies that are vital for operations of a company. Similarly, risk analysis helps companies to be compliant with laws in foreign countries. This report analyzes economic risks, political risks, business environment risks and currency risks that we need to consider before our company embarks on establishing a joint venture in Nigeria. Economic risks One of the major factors that affect the growth of Nigeria economy is poor planning by the government. This has not only resulted to high level of unemployment but also a reduction of household’s income thus lowering the consumer’s purchasing power. For example, the revenue generated by the country’s extensive oil industry is not effectively managed thus increasing the poverty level in the country. In addition, the country has small arable land thus lowering the total food production. As a result, the country has reduced exports thus lowering the Gross Domestic Product (GDP). Another area that is negatively affected by poor government planning in Nigeria is infrastructure system. For instance, the country has poor road system making it difficult to assess rural areas as well as expanding business activities. It is worth to note that for any country to develop, competition is vital since it allows innovation and production of wide range of products in the market. However, a major obstacle affecting Nigeria economic prosperity is lack of genuine competition. As a result, market forces do not play a vital role to regulate the economy. In the same way, the country leaders are significantly engaged in controlling the economy an aspect that is contrary to the Adam Smith ideology of not allowing governments to interfere with economy (Dwivedi, 2001). Macroeconomic imbalances are another challenges facing Nigeria. For example, new ventures have the risk of facing unstable inflation and excessive borrowing by the government. Additionally, the government has failed to commit itself to address the macroeconomic challenges thus leading to larger deficit in the government budget. Political risks In order to establish a profitable business venture, it is imperative for investors to consider the political situation of the country they wish to invest. It is vital to note that even though a firm can have adequate finances to cater for its own internal security, political instability in a country can negatively affect the operations of a company resulting to its closure. This implies that as we focus on entering the Nigeria market, it is fundamental to analyze the pol itical factors of the country thus identifying the obstacles or the benefits that our firm is likely to face. One of the major political aspects that are notable in Nigeria is the rivalry that exists between the North and Southern residents. This was catapulted by the policy that was applied by British government that included use of direct rule on the southern region and indirect rule in the Northern area. Not only has the rivalry between the