Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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A macro-assessment of country risk:
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 |
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2.
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The checklist approach:
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. |
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3.
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Insurance purchased to cover the risk of expropriation __________, and will
typically cover __________.
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. |
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4.
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If a foreign country follows the "Purchase Homemade Products"
philosophy, the least effective strategy would be for a UK firm to:
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 US name) that
manufactures and sells products in that country. | d. | develop a subsidiary (under the US name) that
manufactures products in that country and exports them to border
countries. |
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5.
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A firm may incorporate a country risk rating into the capital budgeting analysis
by:
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 |
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6.
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______________ is(are) not a form 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 |
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7.
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When quantifying country risk:
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. |
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8.
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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.
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9.
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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.
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10.
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Risk assessors almost always arrive at the same opinion after completing a
macroassessment of country risk.
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11.
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Country risk can affect an MNC's cash flows but cannot affect its cost of
capital.
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12.
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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.
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