Question 1

____ is (are) not a form of political risk.

Accepted Answer

A)  Exchange rate movements 
B)  Attitude of consumers in the host country 
C)  Actions of the host government 
D)  Blockage of fund transfers 
E)  All of these are forms of political risk. 
A)  Exchange rate movements 
B)  Attitude of consumers in the host country 
C)  Actions of the host government 
D)  Blockage of fund transfers 
E)  All of these are forms of political risk. A

Question 2

Which of the following is not an example of political risk?

Accepted Answer

A)  The Japanese government requires an MNC's subsidiary to install exercise rooms for its employees. 
B)  The Swiss government requires an MNC's subsidiary to install filters in its manufacturing plants to reduce pollution. 
C)  Country X, considered for expansion, frequently goes to war with its neighbors. 
D)  Country Y's government has recently taken over the subsidiary of one of your competitors, another U.S.-based MNC. 
E)  All of these are examples of political risk. 
A)  The Japanese government requires an MNC's subsidiary to install exercise rooms for its employees. 
B)  The Swiss government requires an MNC's subsidiary to install filters in its manufacturing plants to reduce pollution. 
C)  Country X, considered for expansion, frequently goes to war with its neighbors. 
D)  Country Y's government has recently taken over the subsidiary of one of your competitors, another U.S.-based MNC. 
E)  All of these are examples of political risk. E

Question 3

While an overall risk rating of a country can be useful, it cannot always detect upcoming crises.

Accepted Answer

A) True 
 B)False  True

Question 4

When quantifying country risk:​

Accepted Answer

A)  ​weights should be equally allocated among factors. 
B)  ​weights should be assigned to the political and financial factors according to their perceived importance. 
C)  ​it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. 
D)  ​the derived factors will be identical for all MNCs conducting business in that country. 
A)  ​weights should be equally allocated among factors. 
B)  ​weights should be assigned to the political and financial factors according to their perceived importance. 
C)  ​it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. 
D)  ​the derived factors will be identical for all MNCs conducting business in that country.

Question 5

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 these are correct. 
A)  MNC A 
B)  MNC B 
C)  Both will be equally affected, since the macro-assessment does not vary. 
D)  None of these are correct.

Question 6

An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods produced. It should be most concerned about the country's:​

Accepted Answer

A)  ​growth in gross domestic product. 
B)  ​government policies designed to increase tariffs on imported goods. 
C)  ​local consumer purchasing habits. 
D)  ​government environmental regulations and taxes on the lease or purchase of a production site. 
A)  ​growth in gross domestic product. 
B)  ​government policies designed to increase tariffs on imported goods. 
C)  ​local consumer purchasing habits. 
D)  ​government environmental regulations and taxes on the lease or purchase of a production site.

Question 7

The most important variable in determining a country's degree of overall country risk:​

Accepted Answer

A)  ​is political risk. 
B)  ​is financial risk. 
C)  ​is the probability of a host government takeover. 
D)  ​may often vary with the country of concern. 
A)  ​is political risk. 
B)  ​is financial risk. 
C)  ​is the probability of a host government takeover. 
D)  ​may often vary with the country of concern.

Question 8

Country risk assessment should be used when:

Accepted Answer

A)  determining whether to establish a subsidiary in a foreign country. 
B)  determining whether to continue business in a foreign country. 
C)  determining whether to establish a subsidiary in a foreign country AND determining whether to continue business in a foreign country. 
D)  None of these are correct. 
A)  determining whether to establish a subsidiary in a foreign country. 
B)  determining whether to continue business in a foreign country. 
C)  determining whether to establish a subsidiary in a foreign country AND determining whether to continue business in a foreign country. 
D)  None of these are correct.

Question 9

The primary purpose of country risk analysis when applied to capital budgeting is usually to measure the effect of country risk on:

Accepted Answer

A)  sales. 
B)  cash flows. 
C)  the consolidated balance sheet. 
D)  the consolidated income statement. 
A)  sales. 
B)  cash flows. 
C)  the consolidated balance sheet. 
D)  the consolidated income statement.

Question 10

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

Accepted Answer

A)  A checklist approach 
B)  Discriminant analysis 
C)  Regression analysis 
D)  The Delphi technique 
A)  A checklist approach 
B)  Discriminant analysis 
C)  Regression analysis 
D)  The Delphi technique

Question 11

Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.

Accepted Answer

A) True 
 B)False

Question 12

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 
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

Question 13

Unlike project risk, country risk cannot be incorporated into the capital budgeting analysis of a proposed project by adjustment of the discount rate or by adjustment of the estimated cash flows.

Accepted Answer

A) True 
 B)False

Question 14

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:​

Accepted Answer

A)  ​compare each form of a country risk rating to a benchmark level. 
B)  ​estimate the effect of each form of country risk on cash flows. 
C)  ​estimate the effect of each form of country risk on the income statement and balance sheet. 
D)  ​adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs. 
A)  ​compare each form of a country risk rating to a benchmark level. 
B)  ​estimate the effect of each form of country risk on cash flows. 
C)  ​estimate the effect of each form of country risk on the income statement and balance sheet. 
D)  ​adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs.

Question 15

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

Question 16

Which of the following is not a form of financial risk?

Accepted Answer

A)  exchange rate movements 
B)  inflation rates 
C)  business license requirements imposed on an MNC by the host government 
D)  All of these are forms of financial risk. 
A)  exchange rate movements 
B)  inflation rates 
C)  business license requirements imposed on an MNC by the host government 
D)  All of these are forms of financial risk.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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. 
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.

Question 19

After a project is accepted and implemented, country risk does not need to be monitored; since the project is already established, no further changes can be made.

Accepted Answer

A) True 
 B)False

Question 20

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 these are correct. 
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 these are correct.

____ is (are) not a form of political risk.

Which of the following is not an example of political risk?

While an overall risk rating of a country can be useful, it cannot always detect upcoming crises.

When quantifying country risk:

An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods produced. It should be most concerned about the country's:

The most important variable in determining a country's degree of overall country risk:

Country risk assessment should be used when:

The primary purpose of country risk analysis when applied to capital budgeting is usually to measure the effect of country risk on:

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

Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.

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

Unlike project risk, country risk cannot be incorporated into the capital budgeting analysis of a proposed project by adjustment of the discount rate or by adjustment of the estimated cash flows.

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:

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:

Which of the following is not a form of financial risk?

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

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:

After a project is accepted and implemented, country risk does not need to be monitored; since the project is already established, no further changes can be made.

According to the text, country risk analysis has:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 16: Country Risk Analysis

____ is (are) not a form of political risk.

Which of the following is not an example of political risk?

While an overall risk rating of a country can be useful, it cannot always detect upcoming crises.

When quantifying country risk:​

An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods produced. It should be most concerned about the country's:​

The most important variable in determining a country's degree of overall country risk:​

Country risk assessment should be used when:

The primary purpose of country risk analysis when applied to capital budgeting is usually to measure the effect of country risk on:

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

Higher interest rates tend to increase the growth of an economy and increase the demand for an MNC's products.

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

Unlike project risk, country risk cannot be incorporated into the capital budgeting analysis of a proposed project by adjustment of the discount rate or by adjustment of the estimated cash flows.

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:​

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:

Which of the following is not a form of financial risk?

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

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:​

After a project is accepted and implemented, country risk does not need to be monitored; since the project is already established, no further changes can be made.

According to the text, country risk analysis has:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

When quantifying country risk:

An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods produced. It should be most concerned about the country's:

The most important variable in determining a country's degree of overall country risk:

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

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:

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: