FINS3616 Quiz

Political risks arise because of _______________.

A. Investment agreements between MNCs and host governments.

B. The methods used to identify particular political risks.

C. Unexpected events in a country’s financial, economics, or business life.

D. Unexpected changes in the political environment within a host country or in the relationship of a host country to another country.

E. None of the above.

Country risk can affect the value of a multinational corporation through _____________.

A. Changes in future cash flows.

B. Changes in investors’ required return on investment.

C. Changes in managers’ actions.

D. More than one of the above.

E. None of the above.

Political risk includes each of the following except __________.

A. expropriation.

B. Potential loss of intellectual property rights.

C. protectionism.

D. Risks arising from dealing with an unfamiliar culture.

E. The risk of disruptions in operations.

Qualitative factors that affect country risk assessments include each of the following except ______________.

A. Cancellations of contracts by a host government.

B. Currency risk.

C. Loan defaults or restructurings.

D. Losses from exchange controls.

E. Payment delays.

Political risk insurance can be obtained on which of a. Through c.?

Which of a. Through d. Is true?

A. A particular political risk is more likely to be diversifiable by local investors than by international investors.

B. A political risk such as an election imposes higher costs of capital on MNCs held by globally diversified investors.

C. From the perspective of managers in the multinational corporation, political risk is not diversifiable.

D. Global investors are exposed to MNCs’ total risk, measured by standard deviation of return in the investors’ functional currencies.

E. None of the above.

Which of the following investments is most likely to be expropriated?

A. An electric utility company that is providing the power needed for an emerging country’s industrial expansion.

B. A coffee plantation that is producing beans for export under the company’s brand name.

C. A mobile telephone assembly plant located in an emerging country.

D. A computer plant in an emerging country that is producing computers for sale abroad.

E. A fibre-glass plant that relies on rapidly evolving technology.

________ is the name given the difference between the yield on a bond issued by a developing country in a currency and the government bond yield of the country that issues the currency.

A. The banking spread

B. The country risk premium

C. The country risk rating

D. The country credit spread.

Which one of the following is a method to minimize the chance that political risk events will adversely affect the firm?

A. Focus on the long term

B. Rely on common available supplies

C. Use local resources

D. Refuse to bargain with the government

Which one of the following places an MNC at the most risk?

A. Protective tariffs

B. Doing business in countries with inconvertible currencies

C. Currency controls

D. Currency boards.

FINS3616 Quiz

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