Question 1

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 if the host government does not cooperate. 
C)  attempt to obtain supplies from its parent. 
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 if the host government does not cooperate. 
C)  attempt to obtain supplies from its parent. 
D)  borrow funds from its parent rather than from the host country's creditors. C

Question 2

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 3

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  False

Question 4

The checklist approach:

Accepted Answer

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

Question 5

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 6

A macro assessment of country risk:

Accepted Answer

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

Question 7

______________ 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 the above 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 the above are forms of political risk

Question 8

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 9

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 10

Which of the following is not a way in which country risk analysis can be used

Accepted Answer

A)  to monitor countries where an MNC is currently doing business. 
B)  as a screening device to avoid conducting business in countries with excessive risk. 
C)  to revise an MNC's financing decisions. 
D)  to determine the degree to which the MNC is exposed to exchange rate movements. 
A)  to monitor countries where an MNC is currently doing business. 
B)  as a screening device to avoid conducting business in countries with excessive risk. 
C)  to revise an MNC's financing decisions. 
D)  to determine the degree to which the MNC is exposed to exchange rate movements.

Question 11

Perhaps the most appropriate method for incorporating forms of country risk in a capital budgeting analysis is to estimate how the _______ would be affected by each form of risk.

Accepted Answer

A)  discount rate 
B)  cash flows 
C)  opportunity cost 
D)  none of the above 
A)  discount rate 
B)  cash flows 
C)  opportunity cost 
D)  none of the above

Question 12

The Delphi technique:

Accepted Answer

A)  is a method of purchasing information about inspections of the country being evalu ated. 
B)  requires the use of discriminant analysis to assess country risk. 
C)  involves the collection of independent opinions on country risk. 
D)  none of the above 
A)  is a method of purchasing information about inspections of the country being evalu ated. 
B)  requires the use of discriminant analysis to assess country risk. 
C)  involves the collection of independent opinions on country risk. 
D)  none of the above

Question 13

An MNC must assess country risk not only in countries where it currently does business but also in those where it expects to export or establish subsidiaries.

Accepted Answer

A) True 
 B)False

Question 14

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 national 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 national 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 15

An MNC considers direct foreign investment in Germany.  It is mainly concerned with the subsidiary's ability to generate sufficient sales there.  The country risk characteristic that would best address this concern is:

Accepted Answer

A)  the host government's tax rates charged on remitted earnings. 
B)  the possibility of blocked funds. 
C)  the state of the economy in Germany. 
D)  the possibility of a withholding tax imposed by the German government. 
A)  the host government's tax rates charged on remitted earnings. 
B)  the possibility of blocked funds. 
C)  the state of the economy in Germany. 
D)  the possibility of a withholding tax imposed by the German government.

Question 16

To make an MNC's operations coincide with its own goal,a host government could do all of the following,except:

Accepted Answer

A)  require the use of local employees for managerial positions. 
B)  require social facilities. 
C)  subsidize the MNC. 
D)  require environmental controls. 
A)  require the use of local employees for managerial positions. 
B)  require social facilities. 
C)  subsidize the MNC. 
D)  require environmental controls.

Question 17

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 18

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 19

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 above 
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 above

Question 20

Country risk analysis is important because it:

Accepted Answer

A)  can be used by MNCs as a screening device to avoid countries with excessive risk. 
B)  can be used by MNCs to monitor countries where the MNC is presently engaged in international business. 
C)  can be used to improve the analysis used to make long-term investing or financing decisions. 
D)  all of the above 
A)  can be used by MNCs as a screening device to avoid countries with excessive risk. 
B)  can be used by MNCs to monitor countries where the MNC is presently engaged in international business. 
C)  can be used to improve the analysis used to make long-term investing or financing decisions. 
D)  all of the above

Exam 16: Country Risk Analysis

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

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

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.

The checklist approach:

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.

A macro assessment of country risk:

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

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

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

Which of the following is not a way in which country risk analysis can be used

Perhaps the most appropriate method for incorporating forms of country risk in a capital budgeting analysis is to estimate how the _______ would be affected by each form of risk.

The Delphi technique:

An MNC must assess country risk not only in countries where it currently does business but also in those where it expects to export or establish subsidiaries.

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:

An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary's ability to generate sufficient sales there. The country risk characteristic that would best address this concern is:

To make an MNC's operations coincide with its own goal,a host government could do all of the following,except:

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.

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

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

Country risk analysis is important because it:

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

Multinational Restructuring

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

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