Country Risk New Developed Scale

Index:

Introduction -------------------------------------------------------------------------------------------3
Theory behind the Scale -----------------------------------------------------------------------------3
Specifics of the Scale----------------------------------------------------------------------------------5
SocialDimension------------------------------------------------------------------------------5
Political Dimension---------------------------------------------------------------------------9
Economic Dimension-----------------------------------------------------------------------14
Evaluation of the Scale------------------------------------------------------------------------------18
Country Ratings-------------------------------------------------------------------------------------18
Bibliography------------------------------------------------------------------------------------------18
Annexes-------------------------------------------------------------------------------------------------

Introduction:
The following paper shows the creation of a new risk scale. The Scale was created by merging two preexisting scales: Rundt and Associates, andThe Economist Intelligence Unit. The most relevant variables from each scale were selected and adjusted to the dimensions of this new scale. The selection was made with the aim of grading country risk in general but at the same time with really important information. At the same time this paper will explain the methodology adopted and examples of country risk ratings.

Theory behind the Scale:The Scale provides a country risk evaluation based on 3 equally weight indicators or dimensions, which are the following:
* Social
* Political
* Economic
Each dimension has 10 different variables that give the information needed to grade a country. The variables were obtained and mixed by importance, from the scales of Rundt and Associates, and The Economist Intelligence Unit. Itis important to consider that although the variables were taken from these scales; both the form of rating each variable and the full methodology are different.
Background of the Risk Scales:
S. J. Rundt & Associates, Inc.
S. J. Rundt & Associates, Inc. established in New York is a 58-year old consulting and publishing firm dedicated to helping multinational companies, exporters, importers,banks and investors assess risks and opportunities in their international strategies and transactions. The Scale of Rundt & Associates provides a country risk evaluation based on 3 equally weight indicators or dimensions: Socio-Political Risk (12 variables), Domestic Economic Risk (16 Variables) and External Accounts Risk (16 Variables).
The Economist Intelligence Unit
The Economist is a wellknown newspaper founded in 1843. Economist Intelligence Unit is one of the world's foremost providers of country, industry and management analysis. In 1986 The Economist developed a risk scale to analyze countries. The Economist Scale has three dimensions: Economic Risk (6 variables), Political Risk (6 variables) and Social Risk (4 variables). Each dimension has different weight and differentspecific variables.
Methodology of the New Scale:
The methodology to measure each variable is the following:
1) Variables are rated in a scale 1 to 10, 1 represents the best scenario and 10 the worst.
2) Each variable have a weight from the total possible of each dimension. These weights are selected by the importance of the variable. To obtain the final grade per variable you have to multiplythe first grade (1-10) per the weight of the variable.
Example:
Economic Dimension |
Variable | Weight | Grade (1-10) | Final Grade |
GDP per capita | 0.4 | 3 | 1.2 |

3) Then you sum all the Final Grades of each dimension; it is important to consider that this sum have to be no more than 100.
4) Then the total of each dimension have to be multiply per the final weight of each...