International Financial Institutions And Global Business Strategies Practice Test

What is MIGA and how does it mitigate political risk for investors in developing countries?

Multilateral Investment Guarantee Agency provides political risk insurance and guarantees against risks like expropriation, currency inconvertibility, breach of contract, and war/ civil disturbances to mobilize private investment. MIGA provides microfinance loans to farmers. MIGA sets currency exchange rates. MIGA mediates trade disputes.

Correct Answer:

Explanation:

MIGA is the Multilateral Investment Guarantee Agency, a member of the World Bank Group. It mitigates political risk by offering political risk insurance and guarantees against events that could threaten an investment, such as expropriation, currency inconvertibility or transfer restrictions, breach of contract, and war or civil disturbances. By shifting part of the risk from investors to an insurer, MIGA helps make projects in developing countries more attractive to private capital. This credit enhancement lowers the risk premium lenders charge and can unlock financing, encouraging investment flows where political risk might otherwise deter them. It does not provide microfinance loans, set currency exchange rates, or mediate trade disputes, which are outside its role.

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