Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Macro-assessment of country risk refers to an overall risk assessment of a country without consideration of the MNC's business.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)   will be the same for all firms; only a portion of the firm's total exposure.
B)   will be the same for all firms; all of the firm's total exposure.
C)   will be dependent on the firm's risk; all of the firm's total exposure.
D)   will be dependent on the firm's risk; only a portion of the firm's total exposure.E) B) and C)
F) B) and D)

Question 4

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; reduceE) C) and D)
F) A) and B) C

Question 5

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 aboveE) C) and D)
F) B) and C)

Question 6

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 aboveE) None of the above
F) All of the above

Question 7

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 8

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  False

Question 9

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; increaseE) A) and B)
F) B) and C)

Question 10

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.E) B) and C)
F) None of the above

Question 11

A micro-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 aboveE) None of the above
F) All of the above

Question 12

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.E) A) and D)
F) A) and C)

Question 13

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

Accepted Answer

A)   Adjusting the discount rate upward
B)   Adjusting the input variables to estimate the sensitivity of the project's NPV
C)   Adjusting the political risk rating to obtain a more favorable NPV
D)   Country risk should be ignored in capital budgeting, since it is a subjective analysis.E) B) and C)
F) A) and B)

Question 14

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 15

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 16

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.E) All of the above
F) B) and C)

Question 17

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

Accepted Answer

A)   The Japanese government requires an MNC's subsidiary to install exercise rooms for its employees.
B)   The Swiss government requires an MNC's subsidiary to install filters in its manufacturing plants to reduce pollution.
C)   Country X, considered for expansion, frequently goes to war with its neighbors.
D)   Country Y's government has recently taken over the subsidiary of one of your competitors, another U.S.-based MNC.
E)   All of the above are examples of political risk.F) A) and B)
G) A) and C)

Question 18

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.E) All of the above
F) A) and D) D

Question 19

According to the text, country risk analysis has:

Accepted Answer

A)   almost always detected problems before they occur.
B)   been effectively used in place of capital budgeting to determine whether a project should be accepted.
C)   been perfected as a result of the development of discriminant analysis.
D)   none of the aboveE) B) and C)
F) A) and B)

Question 20

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

Accepted Answer

A)   The checklist approach
B)   The Delphi technique
C)   Quantitative analysis
D)   Inspection visitsE) A) and B)
F) A) and C)

Exam 16: Country Risk Analysis

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

Correct AnswerverifiedShow Answer

Macro-assessment of country risk refers to an overall risk assessment of a country without consideration of the MNC's business.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

The Delphi technique:

Correct AnswerverifiedShow Answer

Country risk analysis is important because it:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A micro-assessment of country risk:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedD

According to the text, country risk analysis has:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

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C

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False

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

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D

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