Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A mild form of political risk is a tendency of residents to purchase only:

Accepted Answer

A)  imported products. 
B)  locally produced products. 
C)  products produced by MNCs. 
D)  none of the above 
A)  imported products. 
B)  locally produced products. 
C)  products produced by MNCs. 
D)  none of the above

Question 3

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 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

Country risk analysis is important because it:

Accepted Answer

A)  focuses on whether to hedge contractual transactions. 
B)  focuses on the competitor firms in its 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 its industry. 
C)  can be used to improve the analysis used to make long-term investing decisions. 
D)  all of the above

Question 6

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 7

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 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

Which of the following is not a way in which country risk analysis can be used?

Accepted Answer

A)  to monitor countries where an MNC is currently doing business. 
B)  as a screening device to avoid conducting business in countries with excessive risk. 
C)  to revise an MNC's financing decisions. 
D)  to determine the degree to which the MNC is exposed to exchange rate movements. 
A)  to monitor countries where an MNC is currently doing business. 
B)  as a screening device to avoid conducting business in countries with excessive risk. 
C)  to revise an MNC's financing decisions. 
D)  to determine the degree to which the MNC is exposed to exchange rate movements.

Question 10

____ 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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 personal computers, while MNC B is considering the establishment of a subsidiary to manufacture tanks. 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 13

____ 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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

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

A mild form of political risk is a tendency of residents to purchase only:

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

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

Country risk analysis is important because it:

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.

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.

A macro-assessment of country risk:

Which of the following is not a way in which country risk analysis can be used?

____ is not a political risk factor.

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

____ is (are) not a form of political risk.

The checklist approach:

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

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

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

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

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

A mild form of political risk is a tendency of residents to purchase only:

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

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

Country risk analysis is important because it:

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.

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.

A macro-assessment of country risk:

Which of the following is not a way in which country risk analysis can be used?

____ is not a political risk factor.

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

____ is (are) not a form of political risk.

The checklist approach:

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

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

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

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 .