As part of my studies, I had to choose one country (the UK) and provide a thorough analysis of the chosen country. In this presentation, you will find the opportunities existing in the country, the potential risks associated with the country (analysis of the BOP,, the the fluctuations in the exchange rate and the four major risks) and how to manage those risks (hedging currency risk, and reduce the other identified risks).

1. Country Analysis: United Kingdom
By Marlène Aimar
CW1 - LON313 International Investment
Analysis
29th March 2016

2. TABLE OF CONTENT
 Introduction
 Opportunities & Market Imperfection (PESTEL Analysis)
Potential Risks
 Risk Management
 Conclusion

3. INTRODUCTION:
OVERVIEW OF THE COUNTRY
 Leading trading power and financial
centre
 2nd economy in Europe
 Population: 64.088.222
 Natural resources: oil, gas and coal
 Services accounts for 79% to total GDP
(banking, insurance, business services)
 Manufacturing represents 10% of
economic output
 One of the fastest growing economies
in G8
 EU member
 Currency: British Pound
 In 2008, the global financial crisis hit the
economy
 High public deficit but intended to be
eliminated by 2020
(Trading Economics 2016) (CIA 2016)

4. OPPORTUNITIES & MARKET
IMPERFECTIONS
 POLITICAL
• Strong democratic system
• Political stability
• Permanent membership of the UN
Security Council, Member of the G8
and NATO
• Considerable influence: IMF and World
Bank
• European Union’s member
• Risk of EU exit
(referendum in 2016)
(Export.Gov 2016)
 LEGAL
• Common law system
• Low corporation tax: 20%
• Increase of exemptions of social
security contribitions
• High in business Freedom
• No investment barriers and no
restrictions on the transfer of capital
or repatriation of profits

5. OPPORTUNITIES & MARKET
IMPERFECTIONS
 ECONOMICAL
• Six-largest economy in the world
• Ranked as the 6th country with ease of
doing business in
• Favourable investment climate
• The pound strong against the dollar
• Big Mac Index: GBP undervalued against
the dollar by 7.6% of the GDP
• High indebteness: 88.6% of the
GDP
(Export.Gov 2015)(Doing Business 2015)
(Export.Gov 2016)(Trading Economics 2016)
Figure 1 – United Kingdom GDP Annual Growth Rate (Trading
Economics 2016)
• Strong economy growth: 2.5% in 2015
Figure 2 – The Big Mac Index (The Economist 2016)

6. OPPORTUNITIES & MARKET
IMPERFECTIONS
 Technological
• Intellectual Property rights
• Increasing R&D expenditure
• High Developed country
 Ecological
• UK’s greenhouse gas emissions
came down by 8.4% in 2014 (The
Guardian 2015)
• 33% of recycled and composted
household waste in 2015 (CIA 2016)
Figure 3 – UK greenhouse gas emissions from
1990 to 2014 (The Guardian 2015)
 Socio/Cultural
• English speakers
• Strong eduction system
• Healthcare service
• Urban population : 82,6% of the
total population in 2015 (CIA 2016)
• Challenge of an aging
population : 0.6% of annual
growth (The World Bank 2015)

7. POTENTIAL RISK
BALANCE OF PAYMENTS UK
2011 2012 2013 2014
Current
account
-27,400 -54,698 -77,908 -92,469
Capital
account
-380 -167 -472 -415
Trade
Balance
-93,542 -106,498 115,231 123,143
Extract from: Office for National Statistics
(http://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments)
Last update: December 2015

8. BALANCE OF PAYMENTS
2011 2012 2013 2014
Imports 401.7 410.8 421.5 419.1
Exports 308.2 304.3 306.2 295.4
Balance -93.5 -106.5 -115.2 -123.7
-200
-100
0
100
200
300
400
500
£billion
UK Trade in Goods

9. CURRENT ACCOUNT
FORECAST
Figure 4 – UK Current account – Forecast 2016-2020
(Trading Economics 2016)
• Current account deficit reached 5.5% of the GDP in 2015
• Forecast by 2020: Around 14.5 billion
(Trading Econimics 2016)

10. FOREIGN EXCHANGE
RATES
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
2011 2012 2013 2014 2015 March
2016
Exchange rate
GBP/USD
• Deficit is linked to the exchange rate
• Echange rate: Price of a nation’s currency in terms another currency
(Business Dictionary n.d)
(CIA 2016)

11. FOREIGN EXCHANGE RATES
• Slow recovering
against the US dollar
since the begining of
March 2016
Figure 7 – 1 Month Change - Currency Perfomance GBP/USD
(Financial Times 2016)
 Inflation rate: 0.3%
(low) contribute to the
appreciation in the
value of its currency
Figure 6 – 1 Year Currency Perfomance GBP/EURO (Financial Times
2016)
• Euro has appreciated
against the sterling

12. FOREIGN EXCHANGE RATES
LINKED TO THE TRADE
BALANCE
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
2011 2012 2013 2014
Exchange rate
Imports
Exports
GBP/USD
TradeBalance
£Billion
Appreciation of
the sterling
worsens the
current account
and the balance of
trade:
 UK exports
become more
expensive
 UK will import
more since the
import prices
are cheaper

13. CURRENCY RISK
 TRANSACTION EXPOSURE
 Exchange rate exposure at the time
we make the transaction
 Transaction gain or loss (Receipt in
Sterling)
EURO depreciates
TRANSACTION LOSS
EURO appreciates
TRANSACTION GAIN
 TRANSLATION EXPOSURE
Less £
More £
 When a company convert the
currency of a foreign branch into the
domestic currency
 Transaction gain or loss (Receipt in
Euro)
£€
€
More €
EURO depreciates
TRANSACTION GAIN
Less €
EURO appreciates
TRANSACTION LOSS
Result in an Economic / Operation Exposure  Fluctuation in the
exchange rates (everyday risk for international companies)
£

14. COUNTRY AND
COMMERCIAL RISKS
• Country risk assessment A2
Figure 8 - Country risk map (PWC 2015)
(Coface 2016)
• Business Climate A1
 COUNTRY RISK  COMMERCIAL RISK
• Potential exist from the EU
 Renogotiation of all EU free-trade
agreements
 Leading to a higher export and import
prices and permanently reduce UK GDP
• High rivalry (developed economy)

15. CROSS-CULTURAL
RISK
Figure 9 - Countries comparision (The Hofstede Centre)
1. Highly individualist
1. Driven by
competition,
achievement and
success
1. Low power distance
society
1. Low uncertainty
avoidance
1. Indulgent (optimism)

16. RISKS MANAGEMENT
 SPOT AND FORWARD RATE
 Spot rate is the today’s price of a currency
 Forward rate is a quoted rate applicable at a future date
(Moffet, Stonehill and
Eiteman 2013)
Figures extracted from The Forex Market Website
 Help companies to hedge (reduce transaction risks)
Name Bid Ask Net Chg. Chg. %
EUR/GBP Spot 0.7781 0.7790 -0.0030 -0.39%
EUR/GBP 01M Forward 62.60000 63.9000 0.4000 0.64%
EUR/GBP 02M Forward 127.6000 129.7000 -1.3500 -1.04%
EUR/GBP 03M Forward 191.3000 194.0000 -1.4000 -0.72%
EUR/GBP 04M Forward 254.4000 259.1000 -06500 -0.25%
EUR/GBP 05M Forward 321.3000 327.3000 -3.1500 -0.96%

17. RISKS MANAGEMENT
 FORWARD CONTRACT
 Hedge currency risk  Fixed exchange rate
Spot transaction:
1EUR = 0.7781 GBP
GBP Received:
£3.8905 million
Transaction Exposure:
Gain
5 months FWD:
1EUR = 0.7164 GBP
GBP Received:
£3.582 million
EUR Received:
EUR 4,999,681.55
EUR Received:
EUR 4,999,755.6
million
Translation Exposure: Loss
Translation Exposure: Loss
Transaction Exposure:
Gain
Renault sells cars to a UK customers for EUR 5
million
*Gain of 74 thousand with a 5 months Forward Contract

18. RISKS MANAGEMENT
 OTHER RISKS
Cross-cultural risk:
• Using local employees
• Learning the Bristish culture and tradition
Commercial risk:
• Observing and studying the strategies of the potential competitors
• Following the trend of the UK regarding the EU and anticipating a
potential exist (settle new strategies by setting forward contracts, for
instance, in order to hedge: exchange rate flucutations)
Country risk:
• No major risk, but a need to stay informed of the political situation

19. CONCLUSION:
UNITED KINGDOM
INVESTMENT OPPORTUNITIES
- 6th largest economy in the world
- Fastest growing economy
- Good climate for business
investment
- Forecast : Reduce the current
account deficit by 2020
- Sterling strong against the Euro
and the Dollar
- Hedging: Forward contract
INVESTMENT RISKS
- Twin deficit
- UK exports less than imports
- Decrease of FDI
- Currency risks: Transaction and
translation exposure
- Cross-cultural and commercial
risks
- Potential exit from the EU  Fall
of confidence from investors
RECOMMENDATION: Waiting the referendum in June 2016 and
ascertaining a decrease in the current account deficit before investing

20. THANK YOU VERY MUCH FOR
YOUR ATTENTION, IF YOU
HAVE ANY QUESTIONS,
PLEASE ASK.

21. REFERENCES
 Moffet, Stonehill and Eiteman (2013) Fundamentals of Multinational Finance. 4th edn, Person.
 Business Dictionary (n.d) Exchange Rate [online] available from
<http://www.businessdictionary.com/definition/exchange-rate.html> [11 March 2016]
 Central Intelligence Angency (2016) The World Factbook [online] available from
<https://www.cia.gov/library/publications/resources/the-world-factbook/geos/uk.html> [10 March
2016]
 Coface (2016) United Kingdom [online] available from <http://www.coface.com/fr/Etudes-
economiques-et-risque-pays/Royaume-Uni> [3 March 2016]
 Doing Business (2015) Economy Rankings [online] available from
<http://www.doingbusiness.org/rankings> [3 March 2016]
 Export.Gov (2015) Doing Business in the UK [online] available from
<http://www.export.gov/unitedkingdom/doingbusinessintheuk/index.asp> [3 March 2016]
 Export.Gov (2016) United Kingdom Market Challenges [online] available from
<http://apps.export.gov/article?id=United-Kingdom-Market-Challenges> [3 March 2016]

22. REFERENCES
 Export.Gov (2016) United Kingdom – Market Overview [online] available from
<http://apps.export.gov/article?id=United-Kingdom-Market-Overview> [3 March 2016]
 Export.Gov (2016) United Kingdom – Trade Barriers [online] available from
<http://apps.export.gov/article?id=United-Kingdom-Trade-Barriers> [3 March 2016]
 Financial Times (2016) Currency Performance [online] available from
<http://markets.ft.com/research/Markets/Currencies> [28 March 2016]
 Fxstreet The Forex Market (2016) Forward Rates [online] available from
<http://www.fxstreet.com/rates-charts/forward-rates/?id=eur%2fgbp> [20 March 2016]
 Office for National Statistics (2015) Balance of Payments [online] available from
<http://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments> [10 March 2016]
 PWC (2015) Country risk premia quarterly update [online] available from
<http://www.pwc.co.uk/services/economics-policy/insights/country-risk-premia-quarterly-
update.html> [14 March 2016]
 The Economist (2016) The Big Mac Index [online] available from
<http://www.economist.com/content/big-mac-index> [21 March 2016]

23. REFERENCES
 The Guardian (2015) Large fall in UK greenhouse gas emissions of over 8% last year
<http://www.theguardian.com/environment/2015/mar/26/large-fall-in-uk-greenhouse-gas-emissions-
of-over-8-last-year> [6 March 2016]
 The Hofstede Centre (n.d) United Kingdom [online] available from <http://geert-
hofstede.com/united-kingdom.html> [14 March 2016]
 Trading Economics (2016) United Kingdom [online] available from
<http://www.tradingeconomics.com/united-kingdom> [13 March 2016]
 The World Bank (2015) Population growth [online] available from
<http://data.worldbank.org/indicator/SP.POP.GROW> [3 March 2016]