Question 1

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 2

Country risk assessment should be used when:

Accepted Answer

A)  determining whether to establish a subsidiary in a foreign country. 
B)  determining whether to continue business in a foreign country. 
C)  A and B 
D)  none of the above 
A)  determining whether to establish a subsidiary in a foreign country. 
B)  determining whether to continue business in a foreign country. 
C)  A and B 
D)  none of the above

Question 3

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 4

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 5

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than the financial factors.

Accepted Answer

A) True 
 B)False

Question 6

Delphi analysis examines the financial and political factors of various countries and attempts to identify which factors help to distinguish between tolerable-risk and intolerable-risk countries.

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

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 9

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 10

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 11

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 12

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 13

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 14

An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary's ability to generate sufficient sales there. The country risk characteristic that would best address this concern is:

Accepted Answer

A)  the host government's tax rates charged on remitted earnings. 
B)  the possibility of blocked funds. 
C)  the state of the economy in Germany. 
D)  the possibility of a withholding tax imposed by the German government. 
A)  the host government's tax rates charged on remitted earnings. 
B)  the possibility of blocked funds. 
C)  the state of the economy in Germany. 
D)  the possibility of a withholding tax imposed by the German government.

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

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 17

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 18

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 19

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 20

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

Exam 16: Country Risk Analysis

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

Country risk assessment should be used when:

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

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

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than the financial factors.

Delphi analysis examines the financial and political factors of various countries and attempts to identify which factors help to distinguish between tolerable-risk and intolerable-risk countries.

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

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.

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.

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

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

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

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.

An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary's ability to generate sufficient sales there. The country risk characteristic that would best address this concern is:

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

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

When quantifying country risk:

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

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.

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

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

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