Question 1 [25marks] Adzoa Smart Company Ltd is a Multinational Corporation (MNC) situated in Gaham country in Sub-Sahara Africa. The government of Gaham takes over the business of Adzoa Smart Company Ltd by giving inadequate compensation. The government of the host country, Gaham, prevents the Adzoa Smart Company Ltd from converting its earnings from the local currency to foreign currency. The conversion is necessary as it will help to repatriate the currency to the home country of Adzoa Smart Company Ltd. This restriction cause a lot of sufferings to the investors of Adzoa Smart Company Ltd. The government of Gaham has put in place some dramatic changes in its rules and regulations. Some of the drastic changes are unanticipated increase in tax rates applicable to multinational corporations operating in the country of Gaham. It is also compulsory to hire local workforce of at least 95%. Compliance to stricter environmental standards is also enforced. Gaham is also plagued with high levels of red-tapeism and corruption at regional and national levels. These pose serious risks to multinational corporations operating in Gaham as it leads to uncertain and high cost of doing business in Gaham. Interestingly, last month Daily Post, an official newspaper in Gaham has reported on its front page that the government of Gaham has revoked the contract of an earlier railway project awarded to ATP construction Ltd without adequate compensation and damages.

Required: Briefly explain the types of risks faced by multinational companies in Gaham based on the scenario above. [10 marks]

Outline the qualitative risk assessment tools that are suitable to assess the risks faced by the companies in Gaham. [8marks]

Distinguish between transaction and economic exposure in currency risk management. 3 Marks

The common form of diversification attempts to spread risk according to the portfolio of companies held within a group based more on links within the supply chain. Explain the challenges associated with diversification.