Question 1

Licensing is a popular form of foreign investment because it does not need a sizable commitment of funds, and political risk is often minimized.

Accepted Answer

A) True 
 B)False  True

Question 2

A ________ is establishing a production or service facility from the ground up.

Accepted Answer

A)  joint venture 
B)  licensing agreement 
C)  greenfield investment 
D)  wholly-owned facility 
A)  joint venture 
B)  licensing agreement 
C)  greenfield investment 
D)  wholly-owned facility C

Question 3

A country can react to the potential for blocked funds prior to making an investment, during operations, or by investing in the local country in assets than maintain their value.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

Accepted Answer

A)  The parent makes a deposit equal to the size of the desired loan into a large commercial bank. 
B)  The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly higher interest rate. 
C)  The lending bank is located in the subsidiary's country. 
D)  All of the above are typical characteristics of a fronting loan. 
A)  The parent makes a deposit equal to the size of the desired loan into a large commercial bank. 
B)  The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly higher interest rate. 
C)  The lending bank is located in the subsidiary's country. 
D)  All of the above are typical characteristics of a fronting loan.

Question 5

Which of the following is NOT an advantage to a joint venture?

Accepted Answer

A)  There is possible loss of opportunity to enter the foreign market with FDI later. 
B)  The local partner understands the customs and mores of the foreign market. 
C)  The local partner can provide competent management at many levels. 
D)  It may be a realistic alternative when 100% foreign ownership is not allowed. 
A)  There is possible loss of opportunity to enter the foreign market with FDI later. 
B)  The local partner understands the customs and mores of the foreign market. 
C)  The local partner can provide competent management at many levels. 
D)  It may be a realistic alternative when 100% foreign ownership is not allowed.

Question 6

________ is the risk that the host government will take specific steps that prevent the foreign affiliate from exercising control over the firm's assets.

Accepted Answer

A)  Inconvertibility 
B)  Expropriation 
C)  Business income risk 
D)  None of the above 
A)  Inconvertibility 
B)  Expropriation 
C)  Business income risk 
D)  None of the above

Question 7

________, also known as macro risks, are political risks that affect the firm at the project or corporate level and originate at the country level.

Accepted Answer

A)  Firm-specific risks 
B)  Country-specific risks 
C)  Global-specific risks 
D)  Governance risks 
A)  Firm-specific risks 
B)  Country-specific risks 
C)  Global-specific risks 
D)  Governance risks

Question 8

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

Accepted Answer

A)  possible loss of quality control 
B)  establishment of a potential competitor in third-country markets 
C)  possible improvement of the technology by the local licensee, which then enters the original firm's home market 
D)  All of the above are potential disadvantages to licensing. 
A)  possible loss of quality control 
B)  establishment of a potential competitor in third-country markets 
C)  possible improvement of the technology by the local licensee, which then enters the original firm's home market 
D)  All of the above are potential disadvantages to licensing.

Question 9

Of the following, which would NOT be considered a firm-specific risk?

Accepted Answer

A)  the risk of getting new management 
B)  management policies toward hedging foreign exchange risk 
C)  parent company policy toward management of local subsidiaries 
D)  All could be considered firm-specific risk. 
A)  the risk of getting new management 
B)  management policies toward hedging foreign exchange risk 
C)  parent company policy toward management of local subsidiaries 
D)  All could be considered firm-specific risk.

Question 10

Greenfield investments are typically ________ and ________ than cross-border acquisition.

Accepted Answer

A)  slower; more uncertain 
B)  faster; of greater certainty 
C)  slower; of greater certainty 
D)  faster; more uncertain 
A)  slower; more uncertain 
B)  faster; of greater certainty 
C)  slower; of greater certainty 
D)  faster; more uncertain

Question 11

Which of the following is/are NOT a/an advantage to a joint venture?
A) The local partner's reputation enhances access to local financial markets.
B) The local partner might take advantage of proprietary information.
C) There are higher agency costs than with a purely domestic firm.
D) The local partner's public image may enhance local sales.

Accepted Answer

The answer of Which of the following is/are NOT a/an...

Question 12

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

Accepted Answer

A)  possible loss of opportunity to enter the licensee's market with FDI later 
B)  risk that technology will be stolen 
C)  high agency costs 
D)  All of the above are potential disadvantages to licensing. 
A)  possible loss of opportunity to enter the licensee's market with FDI later 
B)  risk that technology will be stolen 
C)  high agency costs 
D)  All of the above are potential disadvantages to licensing.

Question 13

________ is a type of political risk that OPIC does NOT cover.

Accepted Answer

A)  Inconvertibility 
B)  Expropriation 
C)  War 
D)  OPIC covers all of the above. 
A)  Inconvertibility 
B)  Expropriation 
C)  War 
D)  OPIC covers all of the above.

Question 14

Banks are very hesitant to engage in fronting loans because of the low probability of repayment and thus their risk exposure up to a 100% loss.

Accepted Answer

A) True 
 B)False

Question 15

Joint-Venture is a preferred mode of foreign-direct investment if

Accepted Answer

A)  the host government limits other modes of entrance. 
B)  the MNE wants to mitigate Greenfield start up risks. 
C)  the MNE wants to mitigate country risks. 
D)  All of the above 
A)  the host government limits other modes of entrance. 
B)  the MNE wants to mitigate Greenfield start up risks. 
C)  the MNE wants to mitigate country risks. 
D)  All of the above

Question 16

Transfer risk concerns mainly the problem of

Accepted Answer

A)  governance risk. 
B)  cultural risk. 
C)  blocked funds. 
D)  environmental concerns. 
A)  governance risk. 
B)  cultural risk. 
C)  blocked funds. 
D)  environmental concerns.

Question 17

The L in OLI refers to an advantage in a firm's home market that is a

Accepted Answer

A)  liability in the domestic market. 
B)  location-specific advantage. 
C)  longevity in a particular market. 
D)  none of the above. 
A)  liability in the domestic market. 
B)  location-specific advantage. 
C)  longevity in a particular market. 
D)  none of the above.

Question 18

OPIC stands for

Accepted Answer

A)  Organization for the Prevention of Insufficient Capitalization. 
B)  Organization of Petroleum Importing Countries. 
C)  Overseas Private Investment Corporation. 
D)  Overseas Public Insurance Commission. 
A)  Organization for the Prevention of Insufficient Capitalization. 
B)  Organization of Petroleum Importing Countries. 
C)  Overseas Private Investment Corporation. 
D)  Overseas Public Insurance Commission.

Question 19

The owner-specific advantages of OLI must be

Accepted Answer

A)  firm-specific. 
B)  not easily copied. 
C)  transferable to foreign subsidiaries. 
D)  all of the above 
A)  firm-specific. 
B)  not easily copied. 
C)  transferable to foreign subsidiaries. 
D)  all of the above

Question 20

Potential strategies to mitigate the risk of expropriation and amendments in the investment agreement include

Accepted Answer

A)  obtaining insurance from OPIC against country risk. 
B)  thin equity injection supplemented with large local debt. 
C)  using International Finance Institutions loans or co-investment vehicles. 
D)  all of the above 
A)  obtaining insurance from OPIC against country risk. 
B)  thin equity injection supplemented with large local debt. 
C)  using International Finance Institutions loans or co-investment vehicles. 
D)  all of the above

Licensing is a popular form of foreign investment because it does not need a sizable commitment of funds, and political risk is often minimized.

A ________ is establishing a production or service facility from the ground up.

A country can react to the potential for blocked funds prior to making an investment, during operations, or by investing in the local country in assets than maintain their value.

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

Which of the following is NOT an advantage to a joint venture?

________ is the risk that the host government will take specific steps that prevent the foreign affiliate from exercising control over the firm's assets.

________, also known as macro risks, are political risks that affect the firm at the project or corporate level and originate at the country level.

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

Of the following, which would NOT be considered a firm-specific risk?

Greenfield investments are typically and than cross-border acquisition.

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

________ is a type of political risk that OPIC does NOT cover.

Banks are very hesitant to engage in fronting loans because of the low probability of repayment and thus their risk exposure up to a 100% loss.

Joint-Venture is a preferred mode of foreign-direct investment if

Transfer risk concerns mainly the problem of

The L in OLI refers to an advantage in a firm's home market that is a

OPIC stands for

The owner-specific advantages of OLI must be

Potential strategies to mitigate the risk of expropriation and amendments in the investment agreement include

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 16: Foreign Direct Investment and Political Risk

Licensing is a popular form of foreign investment because it does not need a sizable commitment of funds, and political risk is often minimized.

A ________ is establishing a production or service facility from the ground up.

A country can react to the potential for blocked funds prior to making an investment, during operations, or by investing in the local country in assets than maintain their value.

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

Which of the following is NOT an advantage to a joint venture?

________ is the risk that the host government will take specific steps that prevent the foreign affiliate from exercising control over the firm's assets.

________, also known as macro risks, are political risks that affect the firm at the project or corporate level and originate at the country level.

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

Of the following, which would NOT be considered a firm-specific risk?

Greenfield investments are typically ________ and ________ than cross-border acquisition.

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

________ is a type of political risk that OPIC does NOT cover.

Banks are very hesitant to engage in fronting loans because of the low probability of repayment and thus their risk exposure up to a 100% loss.

Joint-Venture is a preferred mode of foreign-direct investment if

Transfer risk concerns mainly the problem of

The L in OLI refers to an advantage in a firm's home market that is a

OPIC stands for

The owner-specific advantages of OLI must be

Potential strategies to mitigate the risk of expropriation and amendments in the investment agreement include

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Greenfield investments are typically and than cross-border acquisition.