A

Desk Project Report

On
“FINANCIAL RISK MANAGEMENT IN
INTERNATIONAL OPERATIONS”

Submitted in the partial fulfilment of the degree of Master of

Business Administration

At
School of Commerce and Management

Faculty Guide:
Mr. Mukul Pandey
Assistant Professor

Submitted By:
MD AMIR HASAN
Enrollment Number: AJU/211671
2021-23

1
 ACKNOWLEDGEMENT

I take this opportunity to thank my faculty mentor Mr. Mukul Pandey, Assistant Professor,
ARKA JAIN University, for his valuable guidance, closely supervising this work over with
helpful suggestions, which helped me to complete the report properly and present.

More importantly, his valuable advice and support helped me to put some creative efforts on
my project. He has really been an inspiration and driving force for me and has constantly
enriched my raw ideas with his vast experience and knowledge.

Specially, I would also like to give my special thanks to my parents whose blessings and love
enabled me to complete this work properly as well.

MD AMIR HASAN
AJU/211671
M.B.A. - 2021-23.

2
 School of Commerce and Management

CERTIFICATE BY THE FACULTY MENTOR

This is to certify that MD AMIR HASAN, Enrollment Number-AJU/211688, a student of

Master of Business Administration (M.B.A.) (2021-23), has undertaken the Desk Project
titled “FINANCIAL RISK MANAGEMENT IN INTERNATIONAL OPERATIONS”.
The Project report is hereby submitted by the student for the partial fulfillment of the
requirement for the award of the degree of Master of Business Administration, under my
supervision.

To the best of my knowledge, this project is the record of authentic work carried out during
the academic year (2021-23) and has not been submitted anywhere else for the award of any
Certificate/ Degree/ Diploma etc.

Signature with date

Mr. Mukul Pandey
Assistant Professor

3
 School of Commerce and Management

DECLARATION BY THE STUDENT

I, MD AMIR HASAN, hereby declare that the project titled “FINANCIAL RISK
MANAGEMENT IN INTERNATIONAL OPERATIONS”, has been carried out by
me during my ‘Desk Project’ and is hereby submitted in the partial fulfillment of the
requirement for the award of the degree of Master of Business Administration.

To the best of my knowledge, the project undertaken, has been carried out by me and is my
own work. The contents of this report are original and this report has been submitted to
the “ARKA JAIN University’, Jharkhand and it has not been submitted elsewhere for
the award of any Certificate/Diploma/degree etc.

Signature of the Student with date

MD AMIR HASAN
Roll No.-70
Enrollment No.-AJU/21171
M.B.A. Batch -2021-23.

4
 SUMMARY

Risk is inevitable when undertaking a project. Among the type

of risks that a project team needs to deal with, the financial
risk is the one being studied through this dissertation. The
study intends to analyse the impact of budget constraints,
funding issues, budget overruns, and penalty costs on the
performance of International Operations. Various strategies
are also suggested to reduce the financial risks for improved
performance. To attain these objectives, a quantitative study
with descriptive research design is adopted. The data is
collected from the respective finance persons of the selected
companies and online sources

5
 TABLE OF CONTENTS

CHAPTER CHAPTER NAME PAGE

NUMBER NUMBER
1. INTRODUCTION 7
1.1 Review of Literature 8
1.2 Research Gap 9
1.3 Objectives 10
2. MATERIALS&METHODS 11
2.1 Procedure 12
2.2 Measures 15
2.3 Data analysis 17
3. DISCUSSION 19
3.1 Interpretation 20
3.2 Theoretical implications 24
Future directions
3.3 25
4. CONCLUSION 27
5. REFERENCES 28

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 CHAPTER-I

INTRODUCTION

Recent global financial crisis, rising volatility in the financial markets,

increasing deregulation, poor management practices at banks and other financial
institutions, speculative transactions, huge financial losses, introduction of
innovative financial products and their growing complexity are some of the
current challenges faced by the financial researchers all over the world. These
factors have pushed financial risk management to the forefront by giving new
direction. Financial risk management is not a modern issue. It is the possibility
of losses resulting from unpredicted events like volatility in market prices,
adverse changes in currency rates, unfavorable price variation Journal of Public
Administration, Finance and Law Issue 4/2013 187 in securities and business
partners‟ defaults. It arises because of raising various financial business
activities, huge number of financial transactions including savings, investment,
loans, sales and purchases. Except this, mergers and acquisitions, legal
transactions, debt financing, growing management activities, rising competition,
intervention of the foreign governments and weather are some major factors
responsible for the fluctuations in the financial markets. Since it is not possible
or desirable to eliminate risk completely; as some kind of risk is necessary to
remain in business. It involves an opportunity to earn profit in future
transactions. So understanding and identification of different kinds of risks,
their interrelationship and the factors responsible for its happening are essential
for the management of different kinds of risks. Risk management is a dynamic
process which relates to the institution and its business. It includes and affects
many parts of the institutions like treasury, sales, tax, marketing, purchase,
investment pattern, credit worthiness and corporate finance. The risk
management process entails both internal and external factor analysis. The
internal part of the analysis includes identification and prioritization of the
financial risks facing an institution and understanding their importance. It is
necessary to examine the institution and its management, customers, suppliers,
competitors, balance sheet structure, and position in the market. It is also
essential to consider stakeholders and their objectives and acceptance for risk.
Once a clear understanding of the risks emerges, appropriate strategies can be
implemented in combination with risk management policy. The process of
financial risk management is an ongoing one. Appropriate strategies need to be
implemented and refined in accordance with the changes in market and
requirements of the organizations. Here refinements refers to the changes in the
business environment, changes in expectation about the exchange rate, market
rate and commodity rate and also includes changes in the international political

7
scenario. The present study broadly examines different types of financial risk
and appropriate strategies for their management, specifically the objectives are:

1. To analyze different types of financial risks and the factors affect these risks.

2. Aims to discuss various methods and techniques essential for financial risk
management.

3. To examine the challenges and opportunities regarding the implementation of

Basel Accords in international financial system. The remaining part of this
paper is organized into five sections including introduction. Section 2 presents
the reviews of both theoretical and empirical literatures.

1.1 REVIEW OF LITERATURE

In the last two years we can observe extensive work has been done on the
financial risk management practices particularly after the financial crisis in
2008. A large number of studies have been done in the field of financial risk
management. Some of the major studies are reviewed and discussed below.
Journal of Public Administration, Finance and Law Issue 4/2013 188 Allayannis
et al. (2003) have examined a firm‟s choice between local, foreign and synthetic
local currency debt by using a data set of East Asian Non financial companies.
They have found that there is a unique as well as common factor that determines
use of each debt, indicating the importance of examining debt at a disaggregated
level. They have used the Asian financial crisis as a natural experiment to
investigate the role of debt in firm performance. Finally, they have concluded
that the use of synthetic local currency debt is associated with the biggest drop
in market value, possibly due to currency derivative market illiquidity during
the crisis. Kaen (2005) has defined financial risk as the variability in cash flows
and market values which caused by unpredictable changes in three major
variables such as; commodity prices, interest rates and exchange rates. He has
described that accurate identification and management of the financial risks will
help a firm to reduce the exposure to financial risk. The similar studies by
Bartram et al. (2007) have developed three different methods to quantify the
risks of a systematic failure in the global banking system. They have taken a
sample of 334 banks (representing 80% of global bank equity) in 28 countries
around five global financial crises. Their results become statistically significant,
but economically small. They explained that although policy responses are
endogenous, the low estimated probabilities suggest that the distress of central

8
bankers, regulators and politicians about the procedures could be overstated and
the current policy responses to financial crises could be adequate to handle
major macroeconomic events. Daianu and Lungu (2008) have examined the
factors which are directly responsible for the exposure in the financial market
transactions and indirectly contributed to the current financial crisis. These
factors include introduction of innovative financial products and their growing
complexity; inappropriate regulation and supervision of financial markets; poor
risk management practices at banks and other financial institutions; increased
complexity of financial systems; financial market speculation. Stulz (2008) has
examined there are five major factors which are responsible for the failure of
risk management systems particularly before and during the current financial
crisis. These factors are (1) failure to use appropriate risk metrics; (2)
mismeasurement of known risks; (3) failure to take known risks into account;
(4) failure in communicating risks to top management; (5) failure in monitoring
and managing risks. Both Stulz (2008) and Daianu and Lungu (2008) have
suggested that there is a need to improve the Integrated Risk Management
(IRM) technique which is used as one of the risk management processes where
all the risks are assembled in a strategic and coordinated framework. Hassan
(2009) has evaluated the degree to which the Islamic banks in Brunei
Darussalam implemented risk management practices and analyze how they
operate by using different techniques to deal with various kinds of risks. The
major risks that were faced by these banks were foreign exchange risk, credit
risk and operating risk. He has used a regression model and showed that risk
identification, assessment and analysis were the most influencing variables. He
has concluded that it is essential to understand the true application of Basel-II
Accord to improve the efficiency of Islamic Bank‟s risk management systems.

1.2 RESEARCH GAP

The risk in a project might create a probable future harm that might come from
any existing actions such as slip from the scheduled work, overrun of budget
etc. Often, the loss has been well – thought – out in terms of financial loss, but
also could be a loss in the form of future business, loss of life or property and
credibility. The financial risk management is very important and it is a series of
phase which intents to find out, address and remove the financial risk stuffs
before they turn out to be either the principal basis of costly rework or threats to
the successful functioning of the firm. The financial risks in the international
operations, leads to delayed and failed schemes, and most of which exceed the

9
 original budget. The active administration of risks all through the lifecycle of
Funds has been significant for the success of the project. However, there are
various challenges in managing the risk through the execution of risk
management strategies and there are numerous financial risk that arises in the
international operations. So, this study intends to analyse the Project Financial
Risk Management in International Operations

1.3 OBJECTIVE OF THE STUDY

 To analyse the impact of financial risk of budget constraints on the performance of

International Operations

 To analyse the impact of financial risk of funding issues on the performance of

International Operations.

 To analyse the impact of financial risk of budget overruns on the performance of

International Operations

 To analyse the impact of financial risk of penalty costs on International Operations

 To suggest strategies to reduce the financial risks in International operations for

improved performance in the companies.

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 CHAPTER 2

MATERIALS & METHODS

The research paradigm to be used in this study is positivism since under the
positivist approach; a comparative analysis could be made on various project
financial risks that are encountered in various organizations . The research
approach to be followed in this study is the quantitative study. The quantitative
study comprises of the studies that make use of the statistical examines in order
to acquire their findings. The important features of quantitative study comprise
of systematic and formal measurement and usages of statistics. The quantitative
study has been much closely related with the reasoning, deduction from the
general values to specific circumstances. The research design to be used in this
study would be the descriptive research design. The descriptive research
attempts to clarify an issue, programme, phenomenon or situation methodically
or provides information regarding the residing circumstances of community or
describes attitudes towards an issue. In the quantitative study, the respondents
were asked about the various project financial risks namely budget constraints,
funding issues, budget overruns, penalty costs that are faced in their
organization and their suggestions to reduce it. The quantitative data would be
collected from the finance persons of the selected companies . The sample size
for the quantitative study would be 25. In addition to that the study will take
care of the reliability, validity and ethical considerations.

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2.1 PROCEDURE

Here Are The Five Essential Steps of A Risk Management Process

1. Identify the Risk

2. Analyze the Risk
3. Evaluate or Rank the Risk
4. Treat the Risk
5. Monitor and Review the Risk

Step 1: Identify the Risk

The initial step in the risk management process is to identify the risks that the
business is exposed to in its operating environment.

There are many different types of risks:

 Legal risks
 Environmental risks
 Market risks
 Regulatory risks etc.

It is important to identify as many of these risk factors as possible. In a manual

environment, these risks are noted down manually. If the organization has a risk
management solution employed all this information is inserted directly into the
system.

The advantage of this approach is that these risks are now visible to every
stakeholder in the organization with access to the system. Instead of this vital
information being locked away in a report which has to be requested via email,
anyone who wants to see which risks have been identified can access the
information in the risk management system.

Step 2: Analyze the Risk

Once a risk has been identified it needs to be analyzed. The scope of the risk must
be determined. It is also important to understand the link between the risk and
different factors within the organization. To determine the severity and seriousness
of the risk it is necessary to see how many business functions the risk affects.
There are risks that can bring the whole business to a standstill if actualized, while
there are risks that will only be minor inconveniences in the analysis.

12
In a manual risk management environment, this analysis must be done
manually.When a risk management solution is implemented one of the most
important basic steps is to map risks to different documents, policies, procedures,
and business processes. This means that the system will already have a
mapped risk management framework that will evaluate risks and let you know the
far-reaching effects of each risk.

Step 3: Evaluate the Risk or Risk Assessment

Risks need to be ranked and prioritized. Most risk management solutions have
different categories of risks, depending on the severity of the risk. A risk that may
cause some inconvenience is rated lowly, risks that can result in catastrophic loss
are rated the highest. It is important to rank risks because it allows the organization
to gain a holistic view of the risk exposure of the whole organization. The business
may be vulnerable to several low-level risks, but it may not require upper
management intervention. On the other hand, just one of the highest-rated risks is
enough to require immediate intervention.

There are two types of risk assessments: Qualitative Risk Assessment and
Quantitative Risk Assessment.

Qualitative Risk Assessment

Risk assessments are inherently qualitative – while we can derive metrics from the
risks, most risks are not quantifiable. For instance, the risk of climate change that
many businesses are now focusing on cannot be quantified as a whole, only
different aspects of it can be quantified. There needs to be a way to perform
qualitative risk assessments while still ensuring objectivity and standardization in
the assessments throughout the enterprise.

Quantitative Risk Assessment

Finance related risks are best assessed through quantitative risk assessments. Such
risk assessments are so common in the financial sector because the sector primarily
deals in numbers – whether that number is the money, the metrics, the interest
rates, or any other data point that is critical for risk assessments in the financial
sector. Quantitative risk assessments are easier to automate than qualitative risk
assessments and are generally considered more objective.

Step 4: Treat the Risk

Every risk needs to be eliminated or contained as much as possible. This is done by
connecting with the experts of the field to which the risk belongs. In a manual
environment, this entails contacting each and every stakeholder and then setting up

13
meetings so everyone can talk and discuss the issues. The problem is that the
discussion is broken into many different email threads, across different documents
and spreadsheets, and many different phone calls. In a risk management solution,
all the relevant stakeholders can be sent notifications from within the system. The
discussion regarding the risk and its possible solution can take place from within
the system. Upper management can also keep a close eye on the solutions being
suggested and the progress being made within the system. Instead of everyone
contacting each other to get updates, everyone can get updates directly from within
the risk management solution.

Step 5: Monitor and Review the Risk

Not all risks can be eliminated – some risks are always present. Market risks and
environmental risks are just two examples of risks that always need to be
monitored. Under manual systems monitoring happens through diligent employees.
These professionals must make sure that they keep a close watch on all risk factors.
Under a digital environment, the risk management system monitors the entire risk
framework of the organization. If any factor or risk changes, it is immediately
visible to everyone. Computers are also much better at continuously monitoring
risks than people. Monitoring risks also allows your business to ensure continuity.
We can tell you How you can create a risk management plan to monitor and review
the risk.

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2.2 MEASURES

15
The Biggest Business Risks Around the World
We live in an increasingly volatile world, where change is the only constant.

Businesses, too, face rapidly changing environments and associated risks that
they need to adapt to—or risk falling behind. These can range from supply
chain issues due to shipping blockages, to disruptions from natural catastrophes.
As countries and companies continue to grapple with the effects of the
pandemic, nearly 3,000 risk management experts were surveyed for the Allianz
Risk Barometer, uncovering the top 10 business risks that leaders must watch
out for in 2021.

Business Interruption tops the charts consistently as the biggest business risk.

This risk has slotted into the #1 spot seven times in the last decade of the
survey, showing it has been on the minds of business leaders well before the
pandemic began.
However, that is not to say that the pandemic hasn’t made awareness of this risk
more acute. In fact, 94% of surveyed companies reported a COVID-19 related
supply chain disruption in 2020.

Pandemic Outbreak, naturally, has climbed 15 spots to become the second-

most significant business risk. Even with vaccine roll-outs, the uncontrollable
spread of the virus and new variants remain a concern.
The third most prominent business risk, Cyber Incidents, are also on the rise.
Global cybercrime already causes a $1 trillion drag on the economy—a 50%
jump from just two years ago. In addition, the pandemic-induced rush towards
digitalization leaves businesses increasingly susceptible to cyber incidents.
Other Socio-Economic Business Risks
The top three risks mentioned above are considered the “pandemic trio”, owing
to their inextricable and intertwined effects on the business world. However,
these next few notable business risks are also not far behind.

Globally, GDP is expected to recover by +4.4% in 2021, compared to the -

4.5% contraction from 2020. These Market Developments may also see a
short-term 2 percentage point increase in GDP growth estimates in the event of
rapid and successful vaccination campaigns.
In the long term, however, the world will need to contend with a record of $277
trillion worth of debt, which may potentially affect these economic growth
projections. Rising insolvency rates also remain a key post-COVID concern.

16
Persisting traditional risks such as Fires and Explosions are especially
damaging for manufacturing and industry. For example, the August 2020 Beirut
explosion caused $15 billion in damages.
What’s more, Political Risks And Violence have escalated in number, scale,
and duration worldwide in the form of civil unrest and protests. Such disruption
is often underestimated, but insured losses can add up into the billions.
No Such Thing as a Risk-Free Life
The risks that businesses face depend on a multitude of factors, from political
(in)stability and growing regulations to climate change and macroeconomic
shifts.
Will a post-pandemic world accentuate these global business risks even further,
or will something entirely new rear its head?

2.3 DATA ANALYSIS

Change
Rank %
Risk Name Business Risk Examples from
(2022) Responses
2020

#1 41% Business Supply chain disruptions ↑

Interruption

#2 40% Pandemic Health and workforce issues, ↑

Outbreak restrictions on movement

#3 40% Cyber Incidents Cybercrime, IT ↓

failure/outage, data
breaches, fines and penalties

#4 19% Market Volatility, intensified ↑

Developments competition/new entrants,
M&A, market stagnation,
market fluctuation

#5 19% Legislation/ Trade wars and tariffs, ↓

Regulation economic sanctions,
Changes protectionism, Brexit, Euro-
zone disintegration

#6 17% Natural Storm, flood, earthquake, ↓

17
 Change
Rank %
Risk Name Business Risk Examples from
(2022) Responses
2020

Catastrophes wildfire

#7 16% Fire, Explosion - ↓

#8 13% Macroeconomic Monetary policies, austerity ↑

Developments programs, commodity price
increase, deflation, inflation

#9 13% Climate Change - ↓

#10 11% Political Risks And Political instability, war, ↑

Violence terrorism, civil commotion,
riots and looting

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 CHAPTER 3

DISCUSSION

This chapter discusses about the analysis done by the finance persons of
companies . The study is regarding the Project Financial Risk Management in
international institutions with reference to selected companies in . Most of the
respondents who participated in the study are in the age between 25 – 34 years
and they all are males When asked, 72 % of the respondents stated that their
company provides high priority for managing the financial risks that happens in
a company. This shows that the companies are paying high attention to manage
the financial risks in the software project. About 34 % of the respondents stated
that 20 – 30 % of the annual turnover of the company has been invested in
managing the financial risks in projects by their organization. About 32 % of the
respondents strongly agreed that budget constraints were the highly faced
project financial risk in their organization at the time of completion of
operations. When the respondents were asked about the reasons for budget
overruns in the international projects, about 68% of the respondents attributed
such financial risk to unexpected delays in the project, about 64 % attributed it
to failure in developing an accurate SRS plan and about 62 % of the respondents
blamed the extension in scope of projects. Budget overruns in IT projects were
also attributed to restricted use of resources by 54% of the respondents and to
uncertainty in the project by 52% of the respondents; while about 50% of the
respondents agreed that unskilled resourcing in projects amounts to budget
overruns. Thus, it is inferred that unexpected delays, failure in developing an
accurate SRS plan and extension of projects scope are the main reasons for the
risk of budget overruns in the projects. In the same way, it is stated by Larman
(2004) that the major reasons for budget overruns is that, most of the projects in
Information Technology multi – year and they may not possess the inflations
exactly projected; unexpected delays; uncertainty in scope; scope creeps and
incompetent resourcing. When the respondents were asked about the impacts of
funding issues in IT projects, about 72 % of respondents agreed to the
prevention of monetary rewards for the development team, about 70 % of the
respondents agreed in the creation of delays in a project, and about 64 % of
respondents agreed to impact on reputation of the organization were the major

19
impacts of the risk of funding issues in the international projects. When the
respondents were asked about the strategies adopted in their organization at
present to overcome the Project Financial Risks. For that, about 72 % of the
respondents agreed that, in their organization they follow the proper usage of
resources, about 68 % of the respondents agreed that they follow the proper
management of time, and about 52 % of the respondents agreed that there is an
exact understanding of project complexities in their organization. Then, the
respondents were asked whether the strategies adopted in their organization to
overcome the following financial risks is sufficient in the project management.
For that, 62 % of the respondents agreed for the budget constraints, 54 % of the
respondents agreed for the penalty costs and about 46 % of the respondents
agreed for funding issues and budget overruns. Thus, it is inferred that, the
financial risks of funding issues and budget overruns need added attention in the
companies in International Operations
.

3.1 INTERPRETATION

Understanding Different Business Cultures

Typically, the culture of a company dictates how people behave and strategize.
Rules differ greatly from one country to the next. Communicating effectively
between different business cultures requires an understanding and acceptance of
differences.
This extends beyond the obvious barriers of groups speaking their native
language. Behaviors, gestures and business practices that differ among countries
does not automatically equate to failure. However, not taking time to understand
cultural practices will affect how business is conducted. Grasping cultural
differences is the foundation for managing risks and staying ahead of fluctuating
circumstances that can hinder business overseas.
‍

Risks with Currency Exchange Rates

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Exposure to unanticipated currency exchange rate fluctuations poses financial
risks for international businesses. This event between two currencies can occur
over time and cause gains or losses. Risks associated with currency exchange
rates include exposure of transactions, economic and translation.
Transaction
A transaction exposure occurs when a business has contractual cash flows of
receivables and payables that are subject to unanticipated changes in rates. This is
particularly true when the contract is denominated in the foreign currency rather
than the currency rate of the business’s native land.
To illustrate, an American business could borrow 100 million in Japanese Yen
for a one year term with a three percent effective annual interest rate. Upon
receiving the loan, the business converts the 100 million Yen into $1 million at
the current exchange rate, which is $1 for every 100 Yen. The following year, the
American business will need 103 million Yen to repay the loan. If at that time the
exchange rate between the Dollar and Yen has decreased to $1 for every 90 Yen,
the business would need to pay approximately $1,144,444 to buy the 103 million
Yen.
Economic
Economic exposure, or operating exposure, causes risks to the market value of a
business changing when exchange rates fluctuate unexpectedly. When this
occurs, the cost of producing goods and services – along with sale prices – can be
affected. As a result, profits could rise or fall with the currency exchange rate.
Translation
Movements in the exchange rate affect the financial reporting of a business,
which leads to translation exposure. Generally, this type of risk involves
revaluation of foreign assets held in foreign currency due to variances in foreign
currency exchange rates. Revaluation of this kind creates a loss or gain in
exchange rates for a business.
‍

Overcoming Risks to Foreign Exchange Rates

21
Any international business that has the option to select a billing and pricing
currency should use its national currency, which can help to eliminate exchange
risks. However, not all businesses have this option available when expanding to
foreign countries. In these cases, a business could add a margin buffer to invoices
quoted in foreign currency.
Another option is to have a contract of shared risk when significant fluctuations
occur in foreign exchange rates. Typically, the contract would cover fluctuations
that occur from the date an invoice is generated to the time when payment is
made.
International businesses may also have other financial instruments such as
forwards, futures and options at their disposal to hedge against risks. A foreign
exchange forward contract would have the transaction amount, delivery date and
exchange rate agreed upon in advance. This is a good way to lock in an exchange
rate since no money is exchanged until the settlement date.
Similar to a foreign exchange forward, the currency future also determines a
delivery date, but will include the contract size and a fixed foreign exchange rate.
One difference between the two is daily changes to the contract price. Only one
transfer occurs at the maturity date in forwards; currency futures are not hit with a
default risk, which could happen in forwards.
Currency option involves a contract that gives the holder of the contract rights to
buy or sell currency any time before the contract expires. The advantage of using
a currency option contract is the holder is not obligated to buy foreign currency at
the agreed price when the foreign exchange rate on the market is lower.
However, the cost to buy a currency option contract is higher than what it costs
for forwards or futures.
‍

Political and Economic Risks in Foreign Countries

Before moving operations into a foreign country, a business should assess the
political stability of that country. In addition, the general attitude towards foreign
investments in the country should also be considered. Changes that may occur
within the government or regulatory environment could have a direct impact on
business decisions. Terrorism, acts of war and trade barriers can put foreign
business investments at risk. While these are extreme examples, careful

22
consideration is required when deciding if the business opportunity is worth the
risk.
Along with the political climate, a business should determine current economic
conditions of the country. This includes determining how future development
could impact the foreign country’s purchasing power, GDP, inflation rate and
unemployment rate. Economic risks are also associated with the financial
condition of a foreign country and whether the country can repay its debts.
Armed with the analysis of this information, business investors can make
predictions on how much loss might take place.
‍

Security Environment in Foreign Lands

The security environment in foreign countries is equally important to evaluating

and understanding. In addition to political unrest, these types of conditions
include crime, and kidnap and ransom risks. Employees of businesses operating
in foreign lands should be informed of any changes that pose risks to their
security. The U.S. State Department updates its website when potential risks are
on the radar. However, that is not a substitute for regular briefings and security
updates between businesses and employees.
‍

Health and Medical Concerns

Health risk profiles of foreign countries are a prerequisite to traveling for business
purposes, as well as setting up operations. The Centers for Disease Control and
Prevention offers advice on all the recommended prophylactic medications and
vaccinations that employees should receive before entering a country.
Supplemental information is also available from medical websites, travel medical
clinics and travel insurance providers.
Once employees are in a foreign country, it is the business’s responsibility to
make sure they can access health and medical support in an emergency.
Assistance for infrequent travel to foreign developed countries is usually
available through a travel medical insurance plan. However, travel to

23
underdeveloped countries may require customized solutions from a medical
assistance provider.
‍

International Business Requires Proactive Risk Management

Conducting international business requires a proactive stance on risk

management techniques. The diversity of issues and uncertain variables can
quickly change the dynamics of business success or failure. More risks are
prevalent in international markets, but there are also potential gains.
With due diligence before making an investment, businesses can understand the
political, financial, economic and social climates that have a direct impact on
operations. Knowing how to manage risks associated with international business
can lead to profits around the world.

3.2 THEORETICAL IMPLICATIONS

The following are some of the strategies that could be followed to reduce the
project financial risk in international operations.
 Proper planning :-
In the international operations, planning should be perfectly done in the
management of resources, time and cost. The budget estimation should be done
exactly and it is necessary to find out the requirements at the outset and the
unnecessary costs should be avoided that arises out of poor primary
understanding of the requirements.
 Flexibility and precautionary action :-
The flexibility in the project designs should be increased in order to make the
operations more strong against the alterations in the future demand. Also, even
while the probability of risk is found to be small, it is necessary to take
precautionary action to avoid the worst outcomes.
 Consistency :-

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Consistency is very important in the efforts taken which will create steadiness in
the results of the project. The consistency should be maintained starting from
the budget proposal to the completion of the international operations without
any disturbances.

3.3 FUTURE DIRECTIONS

Managing financial risk for both individuals and corporations starts by working
through a four-stage process that includes the following steps:

 Identifying potential financial risks

 Analyzing and quantifying the severity of these risks
 Deciding on a strategy to manage these risks
 Monitoring the success of the strategy

There are various risk management strategies available to both individuals,

corporations, and financial institutions.

At the individual level, some risk management strategies include:

 Risk avoidance: elimination of activities that can expose the individual to

risk; for example, an individual can avoid credit/debt financing risk by
avoiding the usage of credit to make purchases.
 Risk reduction: mitigating potential losses or the severity of potential
losses; for example, an individual can diversify their investment portfolio to
reduce the risk that their investment portfolio experiences a severe negative
drawdown.
 Risk transfer: the process of transferring risk to a third party; for example,
an individual may purchase a life insurance policy to offload the risk of
premature death to the insurer.
 Risk retention: the process of accepting responsibility for a particular risk,
for example, an individual deliberately not insuring their property.

At the corporate level, the same risk management strategies may be applied, but in
slightly different contexts:

 Risk avoidance: elimination of activities that can expose the corporation to

risk; for example, the corporation can avoid expanding operations to a
geographical area that has high political and regulatory uncertainty.

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  Risk reduction: mitigating potential losses or the severity of potential
losses; for example, a corporation may use hedging on foreign currency
transactions to reduce their exposure to currency fluctuations.
 Risk transfer: the process of transferring risk to a third party; for example,
a corporation may purchase insurance on their property, plant, and
equipment to transfer the risk of damage and theft to the insurer.
 Risk retention: the process of accepting responsibility for a particular risk;
for example, a corporation may accept risks of volatile input costs without
using any hedging or insurance.

Difficulty arises in deciding which strategy to utilize for a particular risk. It comes
down to the nature of the risk and the individual’s or corporation’s current risk
appetite. Risks should be fully understood before deciding on the appropriate
strategy to remedy them.

Example 1 – Risk Transfer: many individuals with spouses and children purchase
life insurance to protect against the risk of premature death. They want to insure
against the loss of income and ensure there is an income safety net for surviving
family members.

Example 2 – Risk Retention: lumber producers are able to hedge their exposure
to lumber prices with the use of futures contracts. However, many choose to retain
this risk and accept commodity price fluctuations. It is, in fact, the industry
standard. If a lumber producer were to hedge their risk, they could place
themselves at a disadvantage if the commodity price begins to move in a favorable
direction.

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 CHAPTER 4

CONCLUSION

The risk management is the structured method to identify, evaluate and control
the risks that develop at the time of the operations or programme life cycle. It
comprises of a series of definite phases in order to upkeep the superior decision
making by means of better understanding of risks intrinsic in a proposal. The
financial risk management is the exercise of economic value in an organization
through the use of financial instruments is done in order to manage exposure to
risk, specifically market risk and credit risk. In this study, 4 major project
financial risks in the companies in Bangalore were analysed namely, budget
constraints, funding issues, budget overruns and penalty costs. The budget
constraints are the top faced budget project financial risk and this risk will
reduce the potential of workers and in turn the project. The funding issues are
another project financial risk which creates the impact of prevention of
monetary rewards, delays in the operations, reduces the agility of financial
management team. The budget overruns are one of the project financial risks
that reduce the profit of the company and various issues in the completion of the
project. Finally, the risk of penalty costs in the international operations creates
the impact of increased costs of the companies and delay in the project. So, it is
necessary to take exact measures like proper resource allocation and usage,
proper management of time and external dependencies and exact understanding
of project complexities, under the project financial risk management in the
companies in order to avoid the financial risks in the international operations

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 CHAPTER 5

REFERENCES

 www.deloitte.com
 www.krovisoverseas.com
 corporatefinanceinstitute.com
 www.visualcapitalist.com
 www.commercecommercialcredit.com

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