Deck 11: Country Risk Analysis

Question 1

A structure of incentives that rewards risk taking in productive ventures is an indicator of long-run _____________ health for a country.

A) social
B) political
C) economic
D) spiritual

Answer 1

C

Question 2

The state's best strategy is to provide basic _________ in order to promote economic growth.

A) health care services
B) lifelong pensions for its workers
C) economic and political stability
D) natural resources

Answer 2

C

Question 3

One good indicator of political risk is

A) the seriousness of capital flight
B) the level of domestic interest rates
C) the level of domestic tax rates
D) a large middle class population

Answer 3

A

Question 4

The economic experiences of Mexico, Chile, and Argentina in the recent past show that they all possessed a_________.

A) a political party system of many factions
B) a loosely drawn economic plan that is allowed to evolve over time
C) a political lead who is more of a manager than a leader
D) a head of state who demonstrates strong will and leadership

Question 5

Which one of the following is NOT a measure of political instability?

A) the number of political parties
B) frequency of changes of government
C) the level of violence
D) conflicts with neighboring states

Question 6

Which of the following foreign investments would be least subject to expropriation?

A) an oil well in an LDC that is providing needed foreign exchange
B) a coffee plantation that is producing beans for export
C) an assembly plant for automobiles located in an LDC
D) a tire making plant in an LDC that is substituting for tire imports

Question 7

Which one of the following is a tough-minded economic policy that may halt capital flight?

A) making utilities publicly owned
B) granting government subsidies to local firms
C) imposing protective tariffs
D) removing barriers to investment by foreigners

Question 8

Capital flight occurs for several reasons, most of which have to do with

A) government regulations on interest rates
B) high taxes on domestic investments
C) the threat of government seizure of domestic assets
D) inappropriate economic policies

Question 9

The great economic lesson of the ill-fated, post-World War II experiment in Communism is that _________ work and command economies do not.

A) state subsidies
B) market forces
C) five-year plans
D) centralized economic controls

Question 10

S. company whose foreign property has been expropriated is most likely to receive legal aid and indemnification from

A) a host country court
B) the U.S. Supreme Court
C) the International Center for Settlement of Investment Dispute
D) the U.S. Appeals Court
E) none of the above will generally prove adequate

Question 11

Which one of the following is NOT a form of political risk to the multinational corporation?

A) currency controls
B) privatization of public utilities
C) changes in tax or labor laws
D) regulatory restrictions

Question 12

During the 1980s many Latin American countries believed in a policy that economic growth was best promoted by extensive state ownership which led to

A) capital flight
B) increased growth in GDP
C) rampant deflations
D) import subsidies

Question 13

What ultimately determines a nation's ability to repay foreign loans is its ability to generate ___________.

A) hard currencies
B) soft currencies
C) more employment
D) more imports

Question 14

A large government deficit relative to GDP, a high rate of money expansion accompanied by fixed exchange rates, along with substantial government expenditures are some of the common characteristics of _________ risk.

A) exchange rate
B) interest rate
C) country
D) investment

Question 15

Political risk is primarily a function of the following but NOT

A) instability in the government
B) uncertainty over property rights
C) the level of violence in the society
D) the degree of centralization practiced by the MNC in country

Question 16

The degree of political risk faced by a firm operating in a foreign country

A) can be determined by using a political risk index
B) depends on the benefits provided by the firm
C) both a and b
D) depends on how the firm has structured its operations

Question 17

An oil company can manage its political risk in Nigeria by all of the following EXCEPT

A) taking out political risk insurance
B) using foreign non?recourse financing
C) selling oil in advance
D) siding with the political establishment regardless of public opinion

Question 18

To halt capital flight, which one of the following would NOT be a measure governments may take?

A) cutting budget deficits
B) impose comprehensive capital controls
C) sell off state?owned enterprises
D) allowing for freer trade

Question 19

Expropriation or creeping expropriation is most likely in the ?????? sector of an economy.

A) manufacturing
B) agricultural
C) construction
D) extractive

Question 20

When investing in a natural resource project, a foreign mining firm can add value to the project by doing all of the following EXCEPT

A) taking out political risk insurance from the home government
B) using foreign financing
C) selling mining resource in advance to customers
D) ignoring safety conditions in the local plant