Question 1

A firm may incorporate a country risk rating into the capital budgeting analysis by:​

Accepted Answer

A)  adjusting the NPV upward if the country risk rating has fallen (implying increased risk)  below a benchmark level.
B)  adjusting the discount rate upward as the country risk rating decreases (implying increased risk) .
C)  A and B
D)  none of the aboveE) All of the above
F) A) and B)

Question 2

To best reduce exposure to a host government takeover, a subsidiary could:​

Accepted Answer

A)  use a long-run profit perspective for business in that country.
B)  hire people from its own country (where the parent is located) .
C)  attempt to obtain supplies from its parent for which substitutes are not available.
D)  borrow funds from its parent rather than from the host country's creditors.E) A) and B)
F) A) and C)

Question 3

Insurance purchased to cover the risk of expropriation ____, and will typically cover ____.

Accepted Answer

A)  will be the same for all firms; only a portion of the firm's total exposure.
B)  will be the same for all firms; all of the firm's total exposure.
C)  will be dependent on the firm's risk; all of the firm's total exposure.
D)  will be dependent on the firm's risk; only a portion of the firm's total exposure.E) A) and B)
F) None of the above

Question 4

When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

Accepted Answer

A) True 
 B)False

Question 5

The ____ involves the collection of independent opinions on country risk without group discussion by the assessors who provide these opinions.

Accepted Answer

A)  checklist approach
B)  discriminant analysis
C)  regression analysis
D)  Delphi techniqueE) A) and C)
F) None of the above

Question 6

If an MNC attempts to build a subsidiary in a country that will take business away from local firms that are protected by the host government, the host government might do all of the following, except:​

Accepted Answer

A)  require the use of local employees for managerial positions.
B)  impose additional taxes.
C)  subsidize the MNC.
D)  subsidize the MNC's competitors.E) All of the above
F) C) and D)

Question 7

Higher interest rates in a foreign country tend to ____ the growth of the country's economy and ____ demand for the MNC's product.

Accepted Answer

A)  increase; increase
B)  reduce; reduce
C)  increase; reduce
D)  reduce; increaseE) B) and C)
F) None of the above

Question 8

If a foreign country's consumers tend to only purchase products that are produced locally, the least effective strategy for a U.S. firm is to:​

Accepted Answer

A)  use a licensing arrangement with a local firm in that country.
B)  enter into a joint venture in that country.
C)  develop a subsidiary (under the U.S. name)  that manufactures and sells products in that country.
D)  develop a subsidiary (under the U.S. name)  that manufactures products in that country and exports them to border countries.E) A) and B)
F) B) and D)

Question 9

MNCs can purchase insurance to cover the risk of expropriation. Which of the following is not a source of this type of insurance?

Accepted Answer

A)  the World Bank
B)  the Overseas Private Investment Corporation (OPI
C)  
C)  the International Monetary Fund (IMF) 
D)  all of the above are sources for insurance against expropriation.E) C) and D)
F) None of the above

Question 10

According to the text, country risk analysis has:​

Accepted Answer

A)  almost always detected problems before they occur.
B)  been effectively used in place of capital budgeting to determine whether a project should be accepted.
C)  been perfected as a result of the development of discriminant analysis.
D)  none of the aboveE) B) and C)
F) A) and D)

Question 11

A blockage of fund transfers imposed by a host government usually forces a subsidiary to donate the funds to the host government.

Accepted Answer

A) True 
 B)False

Question 12

Country risk analysis is important because it:​

Accepted Answer

A)  focuses on whether to hedge contractual transactions.
B)  focuses on the competitor firms in the industry.
C)  can be used to improve the analysis used to make long-term investing decisions.
D)  all of the aboveE) B) and C)
F) None of the above

Question 13

Since country risk is constantly changing and events in other parts of the world are largely unpredictable, country risk analysis is not important for MNCs.

Accepted Answer

A) True 
 B)False

Question 14

A micro-assessment of country risk:​

Accepted Answer

A)  is adjusted for the particular business of the firm involved.
B)  excludes aspects relevant to a particular firm or project.
C)  A and B
D)  none of the aboveE) A) and D)
F) C) and D)

Question 15

Country risk can affect an MNC's cash flows but cannot affect its cost of capital.

Accepted Answer

A) True 
 B)False

Question 16

The checklist approach:​

Accepted Answer

A)  requires several inspections of the country being evaluated.
B)  requires the use of discriminant analysis to assess country risk.
C)  requires ratings and weights to be assigned to all factors relevant in assessing country risk.
D)  involves the collection of independent opinions on country risk.E) A) and C)
F) A) and B)

Question 17

Eurenasia is a country that has frequently been assigned low macro-assessment ratings of country risk in the recent past due to its tendency to war with neighboring nations. MNC A is considering the establishment of a subsidiary to manufacture tablet computers in Eurenasia, while MNC B is considering the establishment of a subsidiary to manufacture tanks there. Which of the two MNCs is likely to be less affected by the low macro-assessment?​

Accepted Answer

A)  MNC A.
B)  MNC B.
C)  Both will be equally affected, since the macro-assessment does not vary.
D)  none of the aboveE) B) and C)
F) None of the above

Exam 16: Country Risk Analysis

When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

Correct Answer
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The checklist approach:

Correct Answer
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A firm may incorporate a country risk rating into the capital budgeting analysis by:

Correct Answer
verified

A blockage of fund transfers imposed by a host government usually forces a subsidiary to donate the funds to the host government.

Correct Answer
verified

To best reduce exposure to a host government takeover, a subsidiary could:

Correct Answer
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Correct Answer
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Higher interest rates in a foreign country tend to the growth of the country's economy and demand for the MNC's product.

Correct Answer
verified

Insurance purchased to cover the risk of expropriation , and will typically cover .

Correct Answer
verified

If a foreign country's consumers tend to only purchase products that are produced locally, the least effective strategy for a U.S. firm is to:

Correct Answer
verified

If an MNC attempts to build a subsidiary in a country that will take business away from local firms that are protected by the host government, the host government might do all of the following, except:

Correct Answer
verified

MNCs can purchase insurance to cover the risk of expropriation. Which of the following is not a source of this type of insurance?

Correct Answer
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A micro-assessment of country risk:

Correct Answer
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Country risk analysis is important because it:

Correct Answer
verified

Since country risk is constantly changing and events in other parts of the world are largely unpredictable, country risk analysis is not important for MNCs.

Correct Answer
verified

Country risk can affect an MNC's cash flows but cannot affect its cost of capital.

Correct Answer
verified

According to the text, country risk analysis has:

Correct Answer
verified

The ____ involves the collection of independent opinions on country risk without group discussion by the assessors who provide these opinions.

Correct Answer
verified

Exam 16: Country Risk Analysis

When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

Correct AnswerverifiedShow Answer

The checklist approach:​

Correct AnswerverifiedShow Answer

A firm may incorporate a country risk rating into the capital budgeting analysis by:​

Correct AnswerverifiedShow Answer

A blockage of fund transfers imposed by a host government usually forces a subsidiary to donate the funds to the host government.

Correct AnswerverifiedShow Answer

To best reduce exposure to a host government takeover, a subsidiary could:​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Higher interest rates in a foreign country tend to ____ the growth of the country's economy and ____ demand for the MNC's product.

Correct AnswerverifiedShow Answer

Insurance purchased to cover the risk of expropriation ____, and will typically cover ____.

Correct AnswerverifiedShow Answer

If a foreign country's consumers tend to only purchase products that are produced locally, the least effective strategy for a U.S. firm is to:​

Correct AnswerverifiedShow Answer

If an MNC attempts to build a subsidiary in a country that will take business away from local firms that are protected by the host government, the host government might do all of the following, except:​

Correct AnswerverifiedShow Answer

MNCs can purchase insurance to cover the risk of expropriation. Which of the following is not a source of this type of insurance?

Correct AnswerverifiedShow Answer

A micro-assessment of country risk:​

Correct AnswerverifiedShow Answer

Country risk analysis is important because it:​

Correct AnswerverifiedShow Answer

Since country risk is constantly changing and events in other parts of the world are largely unpredictable, country risk analysis is not important for MNCs.

Correct AnswerverifiedShow Answer

Country risk can affect an MNC's cash flows but cannot affect its cost of capital.

Correct AnswerverifiedShow Answer

According to the text, country risk analysis has:​

Correct AnswerverifiedShow Answer

The ____ involves the collection of independent opinions on country risk without group discussion by the assessors who provide these opinions.

Correct AnswerverifiedShow Answer

Correct Answer
verified

The checklist approach:

Correct Answer
verified

A firm may incorporate a country risk rating into the capital budgeting analysis by:

Correct Answer
verified

Correct Answer
verified

To best reduce exposure to a host government takeover, a subsidiary could:

Correct Answer
verified

Correct Answer
verified

Higher interest rates in a foreign country tend to the growth of the country's economy and demand for the MNC's product.

Correct Answer
verified

Insurance purchased to cover the risk of expropriation , and will typically cover .

Correct Answer
verified

If a foreign country's consumers tend to only purchase products that are produced locally, the least effective strategy for a U.S. firm is to:

Correct Answer
verified

If an MNC attempts to build a subsidiary in a country that will take business away from local firms that are protected by the host government, the host government might do all of the following, except:

Correct Answer
verified

Correct Answer
verified

A micro-assessment of country risk:

Correct Answer
verified

Country risk analysis is important because it:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

According to the text, country risk analysis has:

Correct Answer
verified

Correct Answer
verified