Question 1

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 2

When a country's currency is inconvertible, the earnings generated by a subsidiary in that country cannot be remitted to the parent through currency conversion.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

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 6

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

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

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 9

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 10

Adjustments to incorporate country risk into the capital budgeting analysis would involve either the addition of a risk premium to the discount rate or a reduction of the cash flows.

Accepted Answer

A) True 
 B)False

Question 11

When quantifying country risk:

Accepted Answer

A)  weights should be equally allocated among factors. 
B)  weights should be assigned to the political and financial factors according to their perceived importance. 
C)  it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. 
D)  the derived factors will be identical for all MNCs conducting business in that country. 
A)  weights should be equally allocated among factors. 
B)  weights should be assigned to the political and financial factors according to their perceived importance. 
C)  it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. 
D)  the derived factors will be identical for all MNCs conducting business in that country.

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

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 17

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

Accepted Answer

A) True 
 B)False

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

When a country's currency is inconvertible, the earnings generated by a subsidiary in that country cannot be remitted to the parent through currency conversion.

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?

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.

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

____ is (are) not a form of political 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.

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.

Adjustments to incorporate country risk into the capital budgeting analysis would involve either the addition of a risk premium to the discount rate or a reduction of the cash flows.

When quantifying country risk:

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

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

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

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

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.

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

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

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

When a country's currency is inconvertible, the earnings generated by a subsidiary in that country cannot be remitted to the parent through currency conversion.

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?

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.

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

____ is (are) not a form of political 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.

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.

Adjustments to incorporate country risk into the capital budgeting analysis would involve either the addition of a risk premium to the discount rate or a reduction of the cash flows.

When quantifying country risk:

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

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

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

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

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.

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

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.