Question 1

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. 
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.

Question 2

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. 
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.

Question 3

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

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 above 
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 above

Question 6

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 7

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 technique 
A) checklist approach 
B) discriminant analysis 
C) regression analysis 
D) Delphi technique

Question 8

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 9

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 10

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 11

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 above 
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 above

Question 12

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 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 13

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 14

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.

Question 15

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

Question 16

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 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

The checklist approach:

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

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

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

According to the text, country risk analysis has:

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

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

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

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:

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

Country risk analysis is important because it:

A micro-assessment of country risk:

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:

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

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

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.

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

Exam 16: Country Risk Analysis

The checklist approach:​

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

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

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

According to the text, country risk analysis has:​

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

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

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

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:​

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

Country risk analysis is important because it:​

A micro-assessment of country risk:​

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:​

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

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

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.

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

The checklist approach:

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

According to the text, country risk analysis has:

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

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

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:

Country risk analysis is important because it:

A micro-assessment of country risk:

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:

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