Showing papers on "Financial risk published in 1983"

LDC's Foreign Borrowing and Default Risk: An Empirical Investigation 1976-1980

Abstract: This paper investigates to what extent the international financial community has taken into account the risk characteristics of borrowing less developed countries when granting loans. Specifically, this study analyzes the determinants of the spread between the interest rate charged to a particular country and the London Interbank Borrowing Rate (LIBOR). The empirical analysis uses data on 727 public and publicly guarantied Eurodollar loans granted to 19 LDC's between 1976 and 1980. The results obtained show that lenders in Eurocredit markets have tended to take into account (some of) the risk characteristics of borrowers. In particular it was found that the level of the spread will be positively related to the debt/GNP ratio and the debt service ratio. On the other hand, the spread will benegatively related to the international reserves to GNP ratio and the propensity to invest. The results obtained also show that an increase in the foreign debt coupled with an equivalent increase in international reserves will tend to leave the perceived probability of default unaffected. The empirical analysis presented in this paper also indicates that as late as 1980 the international financial community had not perceived any significant increase in the probabilities of defaulting in the countries that eventually run into serious debt problems (i.e., Argentina, Brazil, Mexico).

Analyzing Foreign Financial Statements: The Use and Misuse of International Ratio Analysis

Abstract: Financial ratios, which may be appropriate measures of financial risk and return, are often misused when applied to foreign companies. This is due partly to explainable differences in international accounting principles. A more serious problem, however, is that even when ratios are based on U.S. GAAP, they are misinterpreted because the U.S. investor does not understand a particular foreign environment that influences all financial ratios in that environment. Using Japan and Korea as country examples, this paper analyzes the problem of misuse of international ratio analysis with the hope that investors, security analysts, regulatory authorities, and international business researchers will become more aware of the pitfalls.

The assessment of property investment risk

Abstract: The quantitative assessment of the degree of risk associated with the direct acquisition of commercial property for investment purposes is practically non‐existent. There is almost always a total reliance on unquantified subjective feeling with no attempt to transform such a qualitative treatment into an analytically more acceptable and useful form. Whilst the investment capitalisation rate should, to an extent, reflect the investor's view of the future earnings capacity of a particular property, this yield rate is principally a function of general market sentiment and may not significantly allow for the inherent risk characteristics of an individual investment. This is especially the case at the prime end of the market where the pressure of funds competing to invest in a sector of particularly limited supply remains most severe.

The Use of Financial Risk Measures in the Study of Strategic Groups.

Abstract: This research emphasized the use of financial rather than production or marketing variables as a mechanism for forming and analyzing strategic groups. Cluster analysis of computer industry firms in 1977 and 1980 indicated the different financial strategies pursued affected performance and should be incorporated in future studies of strategic groups.

Operations stochastiques de capitalisation

Abstract: This paper presents a stochastic model of capitalization which takes mto account the financial risk in the actuarial processes. We first introduce a stochastic differential equation which allows us to define the capitalization and actuahzation processes. We use these concepts to present a new principle of premium calculation for the capitalization operations, based on the equality between backward reserve and conditional expectation of the forward reserve. A generalization of the classical Thiele equation in life insurance is also given. Numerical examples dlustrate the model.

Crop Credit Insurance and Technical Change in Agricultural Development: A Theoretical Analysis

Abstract: The participation of small farmers in developing countries in agricultural credit programs is limited by the financial risk resulting from borrowing heavily to finance the adoption of new technology. A simple intertemporal model of capital risk is presented which models the small farmer's decision to borrow to adopt new technology. Graphical and mathematical analysis indicate that crop insurance can help alleviate the risk-augmenting effect of borrowing, and thereby encourage small farmer participation in credit programs.

Financial risk of project's cost

Abstract: In this paper we will examine the effects of uncertainty of investment costs on the expected gain and budget allocation of a decision-maker. These effects are studied using the relationship between riskiness and stochastic dominance. Results and examples are provided for the case of budgeting one project. Furthermore, the problem of centralized vs. non-centralized budget allocation forn identically independent distributed projects is discussed.

Financial lease analysis: consistent and inconsistent approaches

Abstract: This paper evaluates lease-purchase analysis methods which assume that leasing provides 100 percent financing and that purchasing involves a mixture of debt and equity finance. Such analyses are being used in Australia particularly in the promotion of leveraged leasing. It is argued that this method is unsound and that analysis of financial leasing should focus on the effects of leasing on the financial risk of the lessee.