Question 1

When the war in Iraq began in 2003, some MNCs feared that oil prices would ____ and that U.S. inflation and interest rates would ____.

Accepted Answer

A)  rise; rise 
B)  fall; fall 
C)  rise; fall 
D)  fall; rise 
A)  rise; rise 
B)  fall; fall 
C)  rise; fall 
D)  fall; rise A

Question 2

Higher interest rates in a foreign country tend to ____ the growth of an 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 B

Question 3

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. C

Question 4

The Multilateral Investment Guarantee Agency can provide MNCs implementing direct foreign investment in less developed countries with:

Accepted Answer

A)  insurance that covers losses on multilateral netting procedures. 
B)  exchange rate risk insurance. 
C)  political risk insurance. 
D)  guarantees that MNCs will receive the same taxation treatment by the host government as local firms. 
E)  guarantees of lines of credit provided by the World Bank if the MNC experiences liquidity problems. 
A)  insurance that covers losses on multilateral netting procedures. 
B)  exchange rate risk insurance. 
C)  political risk insurance. 
D)  guarantees that MNCs will receive the same taxation treatment by the host government as local firms. 
E)  guarantees of lines of credit provided by the World Bank if the MNC experiences liquidity problems.

Question 5

Which of the following is not a form of financial risk?

Accepted Answer

A)  Exchange rate movements 
B)  Inflation rates 
C)  Blockage of fund transfers 
D)  All of the above are forms of financial risk. 
A)  Exchange rate movements 
B)  Inflation rates 
C)  Blockage of fund transfers 
D)  All of the above are forms of financial risk.

Question 6

After a project is accepted and implemented, country risk does not need to be monitored; since the project is already established, no further changes can be made.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:

Accepted Answer

A)  compare each form of a country risk rating to a benchmark level. 
B)  estimate the effect of each form of country risk on cash flows. 
C)  estimate the effect of each form of country risk on the income statement and balance sheet. 
D)  adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs. 
A)  compare each form of a country risk rating to a benchmark level. 
B)  estimate the effect of each form of country risk on cash flows. 
C)  estimate the effect of each form of country risk on the income statement and balance sheet. 
D)  adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

____ is not a political risk factor.

Accepted Answer

A)  High interest rates in a foreign country 
B)  Currency inconvertibility 
C)  War 
D)  Corruption 
A)  High interest rates in a foreign country 
B)  Currency inconvertibility 
C)  War 
D)  Corruption

Question 19

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 20

The Delphi technique:

Accepted Answer

A)  is a method of purchasing information about inspections of the country being evaluated. 
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 evaluated. 
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

Exam 16: Country Risk Analysis

When the war in Iraq began in 2003, some MNCs feared that oil prices would ____ and that U.S. inflation and interest rates would ____.

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

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:

The Multilateral Investment Guarantee Agency can provide MNCs implementing direct foreign investment in less developed countries with:

Which of the following is not a form of financial risk?

After a project is accepted and implemented, country risk does not need to be monitored; since the project is already established, no further changes can be made.

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

A macro-assessment of country risk:

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.

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

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.

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

Country risk analysis is important because it:

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

According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:

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

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

____ is not a political risk factor.

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:

The Delphi technique:

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

When the war in Iraq began in 2003, some MNCs feared that oil prices would and that U.S. inflation and interest rates would .

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