Question 1

When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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)   adjusting the NPV upward if the country risk rating has fallen (implying increased risk)  below a benchmark level AND adjusting the discount rate upward as the country risk rating decreases (implying increased risk) .
D)   None of these are correct.

Question 3

A micro-assessment of country risk:

Accepted Answer

A)   is adjusted for the particular business of the firm involved.
B)   excludes aspects unique to a particular firm or project.
C)   is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project.
D)   None of these are correct.

Question 4

MNCs try to avoid project finance deals because these deals require the MNC to invest a large amount of its own funds at the beginning of the project.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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.

Accepted Answer

A) True 
 B)False

Question 7

A micro-assessment of country risk involves consideration of all variables that affect country risk except for those unique to a particular firm or industry.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)   a country risk rating can adequately substitute for a capital budgeting analysis.
B)   country risk analysis should be incorporated within the capital budgeting analysis.
C)   the effect of country risk on sales revenue is more important than the effect on cash flows.
D)   the project with the highest country risk rating (lowest country risk)  should be accepted.
E)   country risk analysis should be incorporated within the capital budgeting analysis AND the project with the highest country risk rating (lowest country risk)  should be accepted

Question 9

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.

Question 10

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

Accepted Answer

A)   ​use a long-run profit perspective for business in that country.
B)   ​hire people from its own country (where the parent is located) .
C)   ​attempt to obtain supplies from its parent for which substitutes are not available.
D)   ​borrow funds from its parent rather than from the host country's creditors.

Question 11

If an MNC diversifies its operations internationally to reduce its exposure to any individual country's problems, country risk analysis becomes irrelevant.

Accepted Answer

A) True 
 B)False

Question 12

To reduce the exposure to a host government takeover, an MNC may attempt to recover cash flows from the foreign project more quickly or hire local labor.

Accepted Answer

A) True 
 B)False

Question 13

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than for the financial factors.

Accepted Answer

A) True 
 B)False

Question 14

The most reliable way for the capital budgeting analysis to capture country risk is to increase the discount rate for projects in countries with higher perceived risk.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 visitsAnswer Key

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A macro-assessment of country risk:

Accepted Answer

A)   is adjusted for the particular business of the firm involved.
B)   excludes aspects unique to a particular firm or project.
C)   is adjusted for the particular business of the firm involved AND excludes aspects unique to a particular firm or project.
D)   None of these are correct.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 16: Country Risk Analysis

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.

Correct AnswerverifiedShow Answer

A micro-assessment of country risk involves consideration of all variables that affect country risk except for those unique to a particular firm or industry.

Correct AnswerverifiedShow Answer

If an MNC diversifies its operations internationally to reduce its exposure to any individual country's problems, country risk analysis becomes irrelevant.

Correct AnswerverifiedShow Answer

The weights assigned to factors when assessing country risk should always be higher for the political risk factors than for the financial factors.

Correct AnswerverifiedShow Answer

A macro-assessment of country risk:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

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

To reduce the exposure to a host government takeover, an MNC may attempt to recover cash flows from the foreign project more quickly or hire local labor.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A micro-assessment of country risk:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The most reliable way for the capital budgeting analysis to capture country risk is to increase the discount rate for projects in countries with higher perceived risk.

Correct AnswerverifiedShow Answer

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

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

MNCs try to avoid project finance deals because these deals require the MNC to invest a large amount of its own funds at the beginning of the project.

Correct AnswerverifiedShow Answer

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

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