Question 1

A macro-assessment of country risk:

Accepted Answer

A)  is adjusted for the particular business of the firm involved. 
B)  excludes aspects unique to a particular firm or project. 
C)  is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project. 
D)  None of these are correct. 
A)  is adjusted for the particular business of the firm involved. 
B)  excludes aspects unique to a particular firm or project. 
C)  is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project. 
D)  None of these are correct.

Question 2

MNCs try to avoid project finance deals because these deals require the MNC to invest a large amount of its own funds at the beginning of the project.

Accepted Answer

A) True 
 B)False

Question 3

A micro-assessment of country risk involves consideration of all variables that affect country risk except for those unique to a particular firm or industry.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a technique to assess country risk?

Accepted Answer

A)  Gamma technique 
B)  Delphi technique 
C)  checklist approach 
D)  inspection visits
Answer Key 
A)  Gamma technique 
B)  Delphi technique 
C)  checklist approach 
D)  inspection visits
Answer Key

Question 5

Macro-assessment of country risk refers to an overall risk assessment of a country without consideration of the MNC's business.

Accepted Answer

A) True 
 B)False

Question 6

When determining whether a particular proposed project in a foreign country is feasible:

Accepted Answer

A)  a country risk rating can adequately substitute for a capital budgeting analysis. 
B)  country risk analysis should be incorporated within the capital budgeting analysis. 
C)  the effect of country risk on sales revenue is more important than the effect on cash flows. 
D)  the project with the highest country risk rating (lowest country risk) should be accepted. 
E)  country risk analysis should be incorporated within the capital budgeting analysis AND the project with the highest country risk rating (lowest country risk) should be accepted 
A)  a country risk rating can adequately substitute for a capital budgeting analysis. 
B)  country risk analysis should be incorporated within the capital budgeting analysis. 
C)  the effect of country risk on sales revenue is more important than the effect on cash flows. 
D)  the project with the highest country risk rating (lowest country risk) should be accepted. 
E)  country risk analysis should be incorporated within the capital budgeting analysis AND the project with the highest country risk rating (lowest country risk) should be accepted

Question 7

The most reliable way for the capital budgeting analysis to capture country risk is to increase the discount rate for projects in countries with higher perceived risk.

Accepted Answer

A) True 
 B)False

Question 8

To reduce the exposure to a host government takeover, an MNC may attempt to recover cash flows from the foreign project more quickly or hire local labor.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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)  adjusting the NPV upward if the country risk rating has fallen (implying increased risk) below a benchmark level AND adjusting the discount rate upward as the country risk rating decreases (implying increased risk). 
D)  None of these are correct. 
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)  adjusting the NPV upward if the country risk rating has fallen (implying increased risk) below a benchmark level AND adjusting the discount rate upward as the country risk rating decreases (implying increased risk). 
D)  None of these are correct.

Question 11

Delphi analysis examines the financial and political factors of various countries and attempts to identify which factors help to distinguish between tolerable-risk and intolerable-risk countries.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is probably the best method of incorporating country risk into a capital budgeting analysis?

Accepted Answer

A)  adjusting the discount rate upward 
B)  adjusting the input variables to estimate the sensitivity of the project's NPV 
C)  adjusting the political risk rating to obtain a more favorable NPV 
D)  Country risk should be ignored in capital budgeting, since it is a subjective analysis. 
A)  adjusting the discount rate upward 
B)  adjusting the input variables to estimate the sensitivity of the project's NPV 
C)  adjusting the political risk rating to obtain a more favorable NPV 
D)  Country risk should be ignored in capital budgeting, since it is a subjective analysis.

Question 13

If an MNC diversifies its operations internationally to reduce its exposure to any individual country's problems, country risk analysis becomes irrelevant.

Accepted Answer

A) True 
 B)False

Question 14

U.S.-based firms could avoid country risk by simply avoiding international business.

Accepted Answer

A) True 
 B)False

Question 15

When a country's currency is inconvertible, the earnings generated by a subsidiary in that country cannot be remitted to the parent through currency conversion.

Accepted Answer

A) True 
 B)False

Question 16

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than for the financial factors.

Accepted Answer

A) True 
 B)False

Question 17

A micro-assessment of country risk:

Accepted Answer

A)  is adjusted for the particular business of the firm involved. 
B)  excludes aspects unique to a particular firm or project. 
C)  is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project. 
D)  None of these are correct. 
A)  is adjusted for the particular business of the firm involved. 
B)  excludes aspects unique to a particular firm or project. 
C)  is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project. 
D)  None of these are correct.

Question 18

Risk assessors almost always arrive at the same opinion after completing a macro-assessment of country risk.

Accepted Answer

A) True 
 B)False

Question 19

When using a checklist approach to assess country risk, factors should be converted to some numerical forms and assigned equal weights.

Accepted Answer

A) True 
 B)False

Question 20

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. 
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.

Exam 16: Country Risk Analysis

A macro-assessment of country risk:

MNCs try to avoid project finance deals because these deals require the MNC to invest a large amount of its own funds at the beginning of the project.

A micro-assessment of country risk involves consideration of all variables that affect country risk except for those unique to a particular firm or industry.

Which of the following is not a technique to assess country risk?

Macro-assessment of country risk refers to an overall risk assessment of a country without consideration of the MNC's business.

When determining whether a particular proposed project in a foreign country is feasible:

The most reliable way for the capital budgeting analysis to capture country risk is to increase the discount rate for projects in countries with higher perceived risk.

To reduce the exposure to a host government takeover, an MNC may attempt to recover cash flows from the foreign project more quickly or hire local labor.

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

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

Delphi analysis examines the financial and political factors of various countries and attempts to identify which factors help to distinguish between tolerable-risk and intolerable-risk countries.

Which of the following is probably the best method of incorporating country risk into a capital budgeting analysis?

If an MNC diversifies its operations internationally to reduce its exposure to any individual country's problems, country risk analysis becomes irrelevant.

U.S.-based firms could avoid country risk by simply avoiding international business.

When a country's currency is inconvertible, the earnings generated by a subsidiary in that country cannot be remitted to the parent through currency conversion.

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than for the financial factors.

A micro-assessment of country risk:

Risk assessors almost always arrive at the same opinion after completing a macro-assessment of country risk.

When using a checklist approach to assess country risk, factors should be converted to some numerical forms and assigned equal weights.

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

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

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