Country Risk Service
Objective & Purpose
Provide international companies’ management with country
risk analyses supporting operational decision making for risk mitigation policies,
as well as early detection of reversal points for risks taken in developing
countries and emerging economies.
Outputs can be used for managing currency risks, political / credit insurance coverage, budget /planning exercises, hurdle rates for screening investment or benchmarking financial performances of operations in developing countries.
Methodology & Tools
A complete set of quantitative and data-mining tools, based on theoretical principles of non-linearity (the ability to capture the breaks that characterizes materialization of risks). This is supported by a large database that is updated every month along with our risk rating models and early warning signals of economic and financial crises. Complex econometric estimates are used for translating risk ratings into cost of capital.
Yearly subscription to a “menu” of customized outputs from RiskMonitor.
Description of RiskMonitor
Riskmonitor is a major and innovative country risk service developed and successfully commercialized by TAC over the past 18 years, with recognized fundamental innovations in terms of methods and an impressive track record in terms of early warning and adequate risk information. RiskMonitor is based on a comprehensive data-feeder system used in a highly complex set of non-parametric models and providing outputs in terms of cyclical, currency, cross-border payment and political risks.
The key lessons learnt from RiskMonitor and its use over the past decades can be summarized in three critical points: (a) risk materialization cannot be properly captured if non-linearity or combinatorial chains are not included explicitly in country risk systems; (b) there is no need for a very large number of indicators to provide correct early warning signals, but the complexity is in the relationship between the variables, including threshold effects and reinforcing mechanisms; (c) there are far more chances of having a wrong signal or incorrect rating when using fragile forecasts on developing countries, than when correctly building forward-looking indicators based on past and current data and information.
RiskMonitor is therefore providing Risk Ratings (e.g. currency, cross-border payment or solvency, cyclical) as well as Crisis Signals, which are advance warnings of major disruptive shocks such as non-transfer, large recessions and exchange rates collapes. This is presented along three different time-horizons, i.e. less than 1 year, 1 to 3 years and 3 to 5 years.
Finally, RiskMonitor has been extended to provide robust and forward-looking
measures of the extra-cost of capital implied by investing or operating in developing
countries or emerging markets. This is based on econometric equations with a
mean-reversion force based on smoothed market prices for emerging
market risks, is the broadest gauge of the global country risk premium
and immediately usable in overall financial planning
exercises, including impairment tests in the IFRS accounting norms.