Investment Decision Making Assignment Example | Topics and Well Written Essays - 2500 words

Investment Decision Making - Assignment Example Market risk is considered to be un-diversifiable and therefore investors expect a risk premium to compensate them for taking on such risk. (Bodie et al., 2002; Ross et al., 1999). Unsystematic risk otherwise known as firm specific risk or operating risk is risk that can be diversified away and therefore investors should not be compensated for taking on such risk. (Bodie et al., 2002; Ross et al., 1999). Prior to the Basel II accord, more emphasis was placed on hedging market risk. However, following from the Basel II accord, Operations risk herein referred to as OR began receiving greater attention. (Neu and Khn, 2003). The aim of this study is to analyze the problems and risks foreign companies that want to do business in United Arab Emirates and Venezuela are likely to face. In addition, the risk that the company may face in these countries will also be analyzed with respect to each of the two countries. Risk associated with foreign investment whether direct or indirect are numerous. The paper will begin by presenting an overview of the risk situation of United Arab Emirates in part one, focusing on all the risks faced by foreign companies operating in this area. Part two analyse a similar situation as in part one, but focusing on Venezuela. Part three of the paper contrast the situation based on the information presented in part one and two, while the last section made an informed decision to investors as to which of the two countries to invest upon. 1.1.1 United Arab Emirates Overview United Arab Emirates, UAE is a country in the Middle East bordering the Gulf of Oman and the Persian Gulf, between Oman and Saudi Arabia (IMF Economic Report 2007). Potential market's indicators include United Arab Emirates Population (in millions) 4.5 Import of goods and services (millions $ ) 98.976 GNP (in millions of USD) 103.460 The U.A.E. is considered one of the highest per-capita gross national products in the world (IMF Economic Report 2007). Although still heavily dependent on revenues from oil and gas, the country is relatively well-insulated from periods of low oil prices because of successful moves toward economic diversification, large foreign exchange reserves and overseas investments. 1.1.2 United Arab Emirates Risk Profile This section of the paper looks at the overall risk situation of the UAE area. Attention is paid on key change drivers and risk indicators such as political risk, economic risk, competitive risk, exchange rate fluctuations etc. The section goes ahead and sees if there are some of these risks unique to the area. The Literature surrounding operating risk has centred on its management (e.g., Lewis,