To minimize exposure to political risk,a multinational firm may establish a joint venture with a local entrepreneur,establish a joint venture with a group of multinationals,or:

Question

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Purchasing an insurance policy from the Export Development Corporation (EDC) can help a multinational firm mitigate political risk. The EDC provides political risk insurance that will protect the multinational firm if there is expropriation, political violence, currency inconvertibility, or default on a government contract. This is a proactive step that can be taken before entering a foreign market to minimize exposure. Joint ventures can also be effective, but they require finding the right local partner, negotiating the terms of the agreement, and sharing control of the business, which can be complex and time-consuming. Hedging in the Eurodollar market or hedging the Canadian dollar can mitigate currency risk but will not address political risk. Purchasing an insurance policy from the Canada Revenue Agency is not applicable in this context.

To Minimize Exposure to Political Risk,a Multinational Firm May Establish