International Finance Chapter 16

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

Blockage of fund transfers

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

may often vary with the country of concern.

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

measure the effect of country risk on cash flows.

According to the text, country risk analysis has:

none of the above

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:

government environmental regulations and taxes on the lease or purchase of a production site.

The Delphi technique:

involves the collection of independent opinions on country risk.

A micro-assessment of country risk:

is adjusted for the particular business of the firm involved.

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

locally produced products.

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

subsidize the MNC.

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

the International Monetary Fund (IMF).

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:

the state of the economy in Germany.

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

to determine the degree to which the MNC is exposed to exchange rate movements.

Country risk assessment should be used when:

A and B

Which of the following is probably the best method of incorporating country risk into a capital budgeting analysis?

Adjusting the input variables to estimate the sensitivity of the project's NPV

Which of the following is not an example of political risk?

All of the above are examples of political risk.

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

All of the above are strategies to reduce an MNC's exposure to a host government takeover.

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

Delphi Technique

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

Exchange Rate Movements

Which of the following is not a technique to assess country risk?

Gamma technique.

____ is not a political risk factor.

High interest rates in a foreign country

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?

MNC B.

____ involve(s) the collection of independent opinions on country risk without group discussion by the assessors who provide these opinions.

The Delphi technique

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

adjusting the discount rate upward as the country risk rating decreases (implying increased risk).

Country risk analysis is important because it:

all of the above

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

attempt to obtain supplies from its parent for which substitutes are not available

Country risk analysis is important because it:

can be used to improve the analysis used to make long-term investing decisions.

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.

cash flows

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

country risk analysis should be incorporated within the capital budgeting analysis.

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:

develop a subsidiary (under the U.S. name) that manufactures and sells products in that country.

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

estimate the effect of each form of country risk on cash flows.

A macro-assessment of country risk:

excludes all aspects relevant to a particular firm or project.

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

political risk insurance.

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

reduce; reduce

The checklist approach:

requires ratings and weights to be assigned to all factors relevant in assessing country risk.

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

rise;rise

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

strong; increase

When quantifying country risk:

weights should be assigned to the political and financial factors according to their perceived importance.

Insurance purchased to cover the risk of expropriation ____, and will typically cover ____.

will be dependent on the firm's risk; only a portion of the firm's total exposure.