Essay on Risk Analysis
The accurate risk analysis is essential for the adequate assessment of the development of countries, especially in the contemporary, highly unstable economic environment. In this regard, India and Brazil are two emerging economies, which though may face considerable problems in the course of their further development. At this point, it is possible to dwell upon the risk analysis of both Brazil and India in five years term perspective, which reveals potential risks and opportunities both countries can use to accelerate their economic development.
First of all, it is important to focus on the economic exposure of both countries. The economic exposure involves the impact of exchange rates on earning, cash flow and foreign investments of each country. In this regard, both countries are attractive for foreign investors because their economies are growing. At the same time, India is more attractive in terms of its economic growth, because specialists (Country Forecast: India, 2011) forecast the economic growth in India around 8% of GDP annually in five years from now on. In this regard, forecasts of specialists (Country Forecast: Brazil, 2012) concerning Brazil are less optimistic and comprise about 4% of GDP growth annually. Nevertheless, the economic growth should contribute to the stable cash flow and foreign investments, although earnings of both countries may depend on the exchange rate, which is likely to change in the nearest future. In case of Brazil, the national currency is likely to devaluate, while, in case of India, the national currency is likely to revaluate.
The transitional exposure is also extremely important for the adequate risk assessment. The translational exposure of India and Brazil involves the impact of exchange rates on equities, assets, liabilities, and income change. In this regard, if India maintains its trend to revaluation of the national currency, it may face a slowdown in its economic development and, therefore growth of its equities, assets, and income. Brazil can accelerate its economic development.
In face of numerous risks, Brazil focuses on the risk reduction, while India focuses on the risk retention. However, to assess risk adequately, it is possible to use Delphi technique and sensitive analysis.
Delphi technique reveals the fact that Brazil tends to maintain its economic growth through the rise of GDP and lowering the inflation rate, although the negative current-account balance creates risks to the national currency rate compared to the USD, since Brazil face the risk of devaluation of the national currency (Country Forecast: Brazil, 2012).
Delphi technique being applied to India reveals the fact that India can maintain the growth of its GDP higher than Brazil. The country is likely to reduce almost twice its inflation rate but may face the problem of the revaluation of its national currency (Country Forecast: India, 2011), which become more expensive in relation to the USD that may affect the export capacity of India.
At the same time, the sensitivity analysis reveals the fact that Brazil may face considerable problems, if the financial market of the market faces a considerable problem or crisis. In spite of the economic stability, the financial market of Brazil may be vulnerable to negative trends in international markets.
India may face considerable economic problems under the impact of the political turmoil. For instance, if the government resigns, the political change may affect the economic development of the country.
Thus, both Brazil and India face certain risks and they should come prepared to overcome them.
