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Principles of Project Finance, 2nd Edition by E. R. Yescombe

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Chapter 10

Macro-Economic Risks

External macro-economic risks (also known as financial risks), namely changes in interest rates (§10.3), inflation (§10.4), and currency exchange-rates (§10.5), do not relate to the project in particular, but to the economic environment in which it operates. These risks need to be analyzed and mitigated (hedged) in the same way as the specific commercial risks discussed in the previous chapter. Also, a mismatch between a short-term loan and a long-term project is another form of macro- economic risk (§10.6).

However before looking at these macro-economic risks in detail, some basic financial concepts which lie behind calculations of the effect of these risks, as well as other cash-flow related issues in following ...

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