Systematic and Unsystematic Risks Essay Example | Topics and Well Written Essays - 1250 words

Systematic and Unsystematic hazards - Essay ExampleThis makes multi-national potfuls safer comp atomic number 18d to their domestic counterparts. Normally, systematic risk estimation are all-important(a) for listed companies to effectively price the equities, de marchesining the appeal of capital and effective evaluation of projects. However, internationalization also poses some distinct systematic risks to multi-national corporations. round of these distinct risks are - exposure to currency fluctuations in multiple countries, exposure to political risks pertaining to multiple governments, exposure to reduction in ability of monitoring managers in multiple countries, increased chances of asymmetric & inaccurate localized information thus resulting in wrong investment decisions, etc. Internationalizing investment portfolios also increases the exposure to irregular risks - like competitor activity in a foreign country, managers foul play in another country where the companys mon itoring system is weak, etc. Hence, it is important for the organization to have sound global knowledge base & threat database for risk management.Organization structures with distributed power often increases the exposure to both systematic and non-systematic risks. This is the intellect that Chatterjee and Lubatkin et al (1992. pp155) felt that vertical mergers reduces the exposure to both systematic and non-systematic risks. They also observed that vertically integrated companies are able to manage lower cost of capitals thus enabling the integrated company to participate in a wider set of opportunities. Hence, multi-national companies with centralized corporate governance and risk management possess lesser exposure to both systematic and unsystematic risks compared to companies having distributed (country specific) risk management & power structures.Cornell (1999. pp198-199) presented a correlation between risk duration and capital budgeting stating that long term projects may be having higher risks if the variations in cash flow is stochastic in nature. Such projects make estimations of discounted cash flow quite difficult and thence the author recommended discounting of long term projects at higher rates. This is the reason that investors normally prefer to invest in short term projects guaranteeing quick returns. Discussions on Risk Management in DeloitteThe above analysis of risk exposures of multi-national corporations has been carried out to build analogy with Deloitte in which the author works as partner in Croatia. Deloitte is the largest and oldest multi-national corporation in risk advisory and audit services. Deloitte operates in multiple countries across the world through a tightly controlled Franchisee model in which local entrepreneurs are allowed to manage local business based on local market strategies but the risk management, code of conduct and operating methodology is largely governed globally by centralized power centers. The organiza tion possesses a global knowledge base for risk management and allows diversification of portfolios in multiple coun