Summary of Political and Financial risk in brazil for short term investing - Essay Example

Political and Financial Risk in Brazil for Short Term Investing Political Risk Government & Political Risk Short term investing tends to be an engaging environment to service firms. According to research that was conducted on the Brazil’s type of government and political stability, there is room for improvement. Currently, Brazil is better placed than ever in solving serious business issue and is attempting to be a free market. However, there are sectors that enjoy monopoly; a good example is the petroleum sector.

The expected risk of investing in a short term in Brazil appears to be low (Brazil: Risk Assessment, 2014). Legal system The legal system in Brazil is questionable because Brazil is facing issues such as labor freedom, monetary freedom, fiscal freedom, and trade freedom. In addition, Brazil is also facing the challenge of slow and complex regulations. Consequently, these have damaged the Brazil’s reputation as an ideal destination for investors. However, there is a real desire for solving these problems with the aim of realizing the high computation criteria that exist in the developed countries.

Unfortunately, the impacts of these efforts may only be experienced in the long term, therefore, not helpful in addressing the current problems (Brazil: Risk Assessment, 2014). Views towards Foreigners Just like the rest of the world, Brazilians also prefer buying new and high quality products. However, short terms services may not be appreciated unless they are also beneficial to the Brazilians. It is worth noting that building friendship is the key towards successful operating business in Brazil.

Unfortunately, it cannot happen if the corporation does not want to exist physically by opening a store and hiring local people (Brazil: Risk Assessment, 2014). Crime and violence Research that was conducted revealed alarmingly higher crime and violence rates in Brazil as compared to Latin America or even to China and Russia. However, Brazil security authorities are doing all they can to reverse the trend. Consequently, many brave decisions have been made to reduce it to the lowest possible rate (Brazil: Risk Assessment, 2014).

Financial risk Tax Regulations & Rates The high rate of income tax is a great concern in Brazil; furthermore, it has been going on for a long period. Financial analysts, as well as policymakers, have identified income tax as a controversial issue that requires immediate attention. Strikingly, Brazilian tax is considered as a heavy burden on the shoulders of foreign companies. However, the income tax will not reduce in the near future in Brazil together with almost all of the MNCs (Brazil: Risk Assessment, 2014).

Banking System Allowing foreign investors to own shares in Brazilian banks was the best decision that has ever been made regarding the banking system. The positive outcome of the decision was evident in the quick manner by which the local banks recovered from the recession while other banks from the developed countries struggled. In addition, the outperformance of Brazil GPD and unemployment rate reduction are also big evidences on the same. Moreover, the majority of economists predicted a continuous increase on demand for the year 2015, which is a significant motivation to fill this gap (Brazil: Risk Assessment, 2014).

Exchange Rates and Inflation Recently released information indicates that the Brazilian currency has been depreciating since 2013. As a result, products and services in Brazil are cheaper than most of the countries. Consequently, most of the corporations in Brazil can export more of their products especially to the U.S thereby maximizing their profit margin. Consequently, short-term firms investing seem as attractive in Brazil as was earlier thought (Brazil: Risk Assessment, 2014).

Interest rate; It is universally known that where the government wants to stimulate the economy, offering higher interest rate is the solution. In Brazil, things are very different because the Inflation has already crossed the line, and the central bank has drawn for it by 4.5%. Furthermore, the central bank raised the interest rate by 0.25% that keeps inflation ongoing. Therefore, the vision according to the short term is not clear and must be carefully studied (Brazil: Risk Assessment, 2014).

GDP Brazil had a spectacular performance before the financial crisis and made a surprising quickly recovered from the crisis. It was not only reflected on its economic growth but also showed an improvement on its exchange rate, furthermore, more progress are expected 2015 (Brazil: Risk Assessment, 2014). References Brazil: Risk Assessment. (2014, October 6). Retrieved November 17, 2014, from http://globaledge.msu.edu/countries/brazil/risk/