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 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. A

Question 2

A ____ currency may ____ the volume of products imported by the country and therefore reduce the country's production and national income.

Accepted Answer

A) weak; increase 
B) weak; reduce 
C) strong; increase 
D) strong; reduce 
A) weak; increase 
B) weak; reduce 
C) strong; increase 
D) strong; reduce C

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 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 5

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 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) B and D 
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) B and D

Question 7

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 8

Which of the following is not a strategy that could be used by an MNC to reduce its exposure to a host government takeover?​

Accepted Answer

A) Attempt to recover cash flows from a foreign investment as quickly as possible. 
B) Rely on unique supplies and/or technology. 
C) Hire local labor. 
D) Borrow local funds. 
E) All of the above are strategies to reduce an MNC's exposure to a host government takeover. 
A) Attempt to recover cash flows from a foreign investment as quickly as possible. 
B) Rely on unique supplies and/or technology. 
C) Hire local labor. 
D) Borrow local funds. 
E) All of the above are strategies to reduce an MNC's exposure to a host government takeover.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

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 12

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

Question 13

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 14

The primary purpose of country risk analysis when applied to capital budgeting is usually to:

Accepted Answer

A) measure the effect of country risk on sales. 
B) measure the effect of country risk on cash flows. 
C) measure the effect of country risk on the consolidated balance sheet. 
D) measure the effect of country risk on the consolidated income statement. 
A) measure the effect of country risk on sales. 
B) measure the effect of country risk on cash flows. 
C) measure the effect of country risk on the consolidated balance sheet. 
D) measure the effect of country risk on the consolidated income statement.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

A macro-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 above 
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 above

Question 18

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 19

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 20

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

Exam 16: Country Risk Analysis

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

A ____ currency may ____ the volume of products imported by the country and therefore reduce the country's production and national income.

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

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

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:​

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

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.

Which of the following is not a strategy that could be used by an MNC to reduce its exposure to a host government takeover?​

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

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

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

Country risk analysis is important because it:​

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

The primary purpose of country risk analysis when applied to capital budgeting is usually to:

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

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.

A macro-assessment of country risk:​

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.

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.

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

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 Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

A currency may the volume of products imported by the country and therefore reduce the country's production and national income.

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:

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

Which of the following is not a strategy that could be used by an MNC to reduce its exposure to a host government takeover?

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

Country risk analysis is important because it:

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

A macro-assessment of country risk:

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