跨国金融原理(第三版)题库ch-7

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FundamentalsofMultinationalFinance,3e(Moffett)

Chapter18PoliticalRiskAssessmentandManagement

18.1MultipleChoiceandTrue/FalseQuestions

1)Thepossibilityofsufferingharmorloss,oracourseinvolvinguncertaindangerorhazardisadefinitionof________.

A)risk

B)standarddeviation

C)beta

D)variance

Answer:A

Topic:Risk

Skill:Recognition

2)WhichofthefollowingisNOTanexampleofasubjectivemeasuregatheredbyinstitutionalresearchers?

A)alocalcountry'srankingforpoliticalstability

B)alocalcountry'srankingforeconomicstability

C)alocalcountry'sunemploymentrate

D)Alloftheabovearesubjectivemeasures.

Answer:C

Topic:SubjectiveMeasuresofInternationalRisk

Skill:Recognition

3)Ofthefollowing,whichwouldNOTbeconsideredafirmspecificrisk?

A)theriskofgettingnewmanagement

B)managementpoliciestowardhedgingforeignexchangerisk

C)parentcompanypolicytowardmanagementoflocalsubsidiaries

D)Allcouldbeconsideredfirmspecificrisk.

Answer:D

Topic:FirmspecificRisk

Skill:Recognition

4)________risksarethosethataffecttheMNEatthelocalorprojectlevel,butoriginateatthecountrylevel.

A)Countryspecific

B)Firmspecific

C)Globalspecific

D)Noneoftheabove

Answer:A

Topic:CountryspecificRisk

Skill:Recognition

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5)WhichofthefollowingisNOTanexampleofacountryspecificrisk?

A)transferrisk

B)warandethnicstrife

C)culturalandreligiousheritage

D)Alloftheaboveareexamplesofcountryspecificrisk.

Answer:D

Topic:CountryspecificRisk

Skill:Recognition

6)WhichofthefollowingisNOTastrategytomeasureandmanageforeigninvestmentrisks?

A)sensitivityanalysis

B)diversification

C)insurance

D)Allarestrategiestomeasureandmanageforeigninvestmentrisk.

Answer:D

Topic:ForeignInvestmentRisk

Skill:Recognition

7)Whenfacedwithadditionalriskfromaforeigninvestment,firmstypicallyaccountfortheadditionalriskbyadjustingthediscountratesorbyadjustingcashflows.

Answer:TRUE

Topic:RiskadjustedCashFlows

Skill:Conceptual

8)Whichofthefollowingwouldbeashortcomingofadjustingdiscountratestoaccountfortheincreasedriskofforeigninvestments?

A)Theactualsizeofthecashinflowsmayvaryfromtheexpectedvalues.

B)Thetimingofthecashflowsareunknown.

C)Treatingtheuncertaincashflowsasiftheywereonesidedrisksratherthantwosidedrisks.

D)Noneoftheabove.

Answer:C

Topic:RiskadjustedDiscountRates

Skill:Conceptual

9)Adjustingthediscountratetoaccountforincreasedpoliticalriskisalmostalwaysthebestpossiblewaytoaccountforrisk.

Answer:FALSE

Topic:RiskadjustedDiscountRates

Skill:Conceptual

10)________istheabilitytoexerciseeffectivecontroloveraforeignsubsidiarywithinacountry'slegalandpoliticalenvironment.

A)Politicalrisk

B)Portfoliorisk

C)Interestraterisk

D)Governancerisk

Answer:D

Topic:GovernanceRisk

Skill:Recognition

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11)Ofthefollowing,whichwouldNOTbeconsideredanissueforaninvestmentagreementpriortoinvestinginaforeigncountry?

A)thebasisforsettingtransferprices

B)therighttoexporttothirdcountrymarkets

C)provisionforarbitrationofdisputes

D)Alloftheabovecouldbenegotiatedpriortoinvesting.

Answer:D

Topic:PreinvestmentNegotiations

Skill:Conceptual

12)OPICstandsfor

A)OrganizationforthePreventionofInsufficientCapitalization.

B)OrganizationofPetroleumImportingCountries.

C)OverseasPrivateInvestmentCorporation.

D)OverseasPublicInsuranceCommission.

Answer:C

Topic:OPIC

Skill:Recognition

13)________isatypeofpoliticalriskthatOPICdoesNOTcover.

A)Inconvertibility

B)Expropriation

C)War

D)OPICcoversalloftheabove.

Answer:D

Topic:OPIC

Skill:Recognition

14)________istheriskthattheinvestorwillnotbeabletoconvertprofits,royalties,orfeesintodollars.

A)Inconvertibility

B)Expropriation

C)Businessincomerisk

D)Noneoftheabove

Answer:A

Topic:Inconvertibility

Skill:Recognition

15)________istheriskthatthehostgovernmentwilltakespecificstepsthatpreventtheforeignaffiliatefromexercisingcontroloverthefirm'sassets.

A)Inconvertibility

B)Expropriation

C)Businessincomerisk

D)Noneoftheabove

Answer:B

Topic:Expropriation

Skill:Recognition

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16)FDImayrequirefirmstobeflexibleinhowtheydobusiness.WhichofthefollowingisNOTapotentialproblemassociatedwithafirmadaptingtoagovernmentrequirementoflocalsourcing?

A)alackoflocaleconomiesofscaletoproduceneededrawmaterials

B)unreliabledeliveryschedulesonthepartoflocalfirms

C)uncertainqualitycontrol

D)Alloftheabovearepotentialforcedlocalsourcingproblems.

Answer:D

Topic:FDIFlexibility

Skill:Conceptual

17)________isNOToneofthethreemaincountryspecificrisksasoutlinedbyyourauthors.

A)Transferrisk

B)Culturaldifferences

C)Thinequitybase

D)Protectionism

Answer:C

Topic:CountryspecificRisk

Skill:Recognition

18)Acountrycanreacttothepotentialforblockedfundspriortomakinganinvestment,duringoperations,orbyinvestinginthelocalcountryinassetsthanmaintaintheirvalue.

Answer:TRUE

Topic:BlockedFunds

Skill:Conceptual

19)AnFDIprojectthatentersacountryforthepurposeofconstructinganassemblyfacilityforproductsthataretobereexportedisanexampleof________.

A)resourceseekingbehavior

B)marketseekingbehavior

C)productionseekingbehavior

D)laborseekingbehavior

Answer:C

Topic:ProductionseekingBehavior

Skill:Conceptual

20)Blockedfundsarecashflowsthat

A)comeinregularintervalsinstandardizedamountsorblocks.

B)havebeenrestrictedintransferoutofalocalcountry.

C)comefromacertainsectororregionoftheworld.

D)noneoftheabove.

Answer:B

Topic:BlockedFunds

Skill:Recognition

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21)A________loan,alsoknownas________isaparenttoaffiliateloanchanneledthroughafinancialintermediarysuchasalargecommercialbank.

A)fronting;linkfinancing

B)parallel;abacktobackloan

C)fronting;abacktobackloan

D)linkfinancing;parallelloan

Answer:A

Topic:FrontingLoans

Skill:Recognition

22)WhichofthefollowingisNOTatypicalcharacteristicofafrontingloanmadetoaninternationalsubsidiary?

A)Theparentmakesadepositequaltothesizeofthedesiredloanintoalargecommercialbank.

B)Thebanklendstothesubsidiaryfirmanamountequaltotheparentdepositataslightlyhigherinterestrate.

C)Thelendingbankislocatedinthesubsidiary'scountry.

D)Alloftheabovearetypicalcharacteristicsofafrontingloan.

Answer:C

Topic:FrontingLoans

Skill:Recognition

23)Banksareveryhesitanttoengageinfrontingloansbecauseofthelowprobabilityofrepaymentandthustheirriskexposureuptoa100%loss.

Answer:FALSE

Topic:FrontingLoans

Skill:Conceptual

24)Governmentauthoritiesaremorelikelytoallowsubsidiaryrepaymentofaloantoalargeinternationalbankthantoaparentfirmbecause

A)stoppingpaymenttoaninternationalbankwouldhaveanegativeimpactonthecreditimageofthecountry.

B)thegovernmentisalsoborrowingmoneyfromthatbankandwantsalargerloanbeforetheychoosetodefault.

C)corruptgovernmentofficialshaveaccountsatthebankandtheyhavemadeanunderthetableagreementnottowithholdfundsfromthatbank.

D)noneoftheabovearetrue.

Answer:A

Topic:FrontingLoans

Skill:Recognition

25)WhichofthefollowingisNOTatechniqueformovingblockedfundsoutofacountry?

A)usefrontingloans

B)createunrelatedexports

C)obtainaspecialdispensation

D)Alloftheabovearetechniquesformovingblockedfunds.

Answer:D

Topic:BlockedFunds

Skill:Recognition

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26)Whichofthefollowingcouldbeconsideredanexampleofforcedreinvestmentiftheblockageoffundswasexpectedtobetemporary?

A)verticalreinvestmentbyanautomobilemanufacturertobuypartssuppliersandshowrooms

B)alumbercuttingcompanysubsequentlybuildsapapermillwithblockedfunds

C)purchaseoflocalmoneymarketinstrumentsandshorttermloans

D)alloftheabove

Answer:C

Topic:BlockedFunds

Skill:Conceptual

27)Sovereignriskisthedanger

A)thatthecountry'sroyaltywillbeoverthrowninamilitarycoup.

B)thatacountrywillneedtopayariskpremiumtoinvestorsinordertoraisefundsathomeorabroad.

C)thatcountry'sroyalfamilyisunfittorule.

D)noneoftheabove.

Answer:B

Topic:SovereignRisk

Skill:Recognition

28)Ofthefollowing,whichwasNOTidentifiedbytheauthorsasatypeofculturaldifferencethatMNEsmustconsiderwhenexpandingtoforeigncountries?

A)differencesinhumanresourcenorms

B)differencesinreligiousheritage

C)differencesinallowableownershipstructures

D)Alloftheabovemustbeconsidered.

Answer:D

Topic:CulturalDifferences

Skill:Recognition

29)TheScandinaviancountriessuchasDenmark,Finland,andSweden,areperceivedashavingthelowestlevelofcorruptionintheworld.

Answer:TRUE

Topic:CorruptionLevels

Skill:Recognition

30)AforeigninvestmentundertakenbyanMNEthatisconsideredriskyfromapoliticalandcurrencyperspectivemaystillbeundertakenbecause:

A)Theinvestorisformingastrategicalliancewithadomesticpartner.

B)TheMNEisbasingitsforeigninvestmentdecisionsonaportfoliobasis.

C)TheMNEsmanagementdoesnotbelievethatriskcanbemeasuredorpredicted.

D)Theinvestorknowsthattheywillbemorethanadequatelycompensateforacceptinghigherrisk.

Answer:B

Topic:InvestmentPortfolio

Skill:Conceptual

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31)________isanacceptablemethodofadjustingforriskwhenanalyzingtheprospectsofaforeigninvestment.

A)Adjustingthediscountrate

B)Adjustingthecashflows

C)Conductingsensitivelyandscenariosanalysis

D)Alloftheabove

Answer:D

Topic:MethodsofRiskAdjustment

Skill:Conceptual

32)TheU.S.Treasurybondisconsideredtobea"riskfree"securitybecausethepaymentofprincipalandinterest

A)willbeadjustedforinflation.

B)willbeadjustedforchangesintheU.S.dollar'syieldcurve.

C)willbepaidbecausetheU.S.governmenthastheabilitytocreatemoneytorepaybondholders.

D)alloftheabovearetrue.

Answer:C

Topic:RiskfreeReturn

Skill:Conceptual

33)Analternativestrategytoengaginginbriberyininternationalinvestmentsinclude:

A)Refusebriberyoutright.

B)Retainlocaladvisorstodiffuserequestsforbribes.

C)Educatemanagementandlocalemployeesaboutthefirm'sbriberypolicy.

D)Alloftheabove.

Answer:D

Topic:Bribery

Skill:Recognition

34)________industriesareNOTtypically"protected"bygovernmentpolicy.

A)Textiles

B)Defense

C)Agriculture

D)"Infant"industries

Answer:A

Topic:Protectionism

Skill:Recognition

35)Formingregionalalliancesisonewaytohelpmitigatethepracticeofgovernmentprotectionism.WhichofthefollowingisNOTaregionaltradeorganizationformedbygovernmenttreaty?

A)EU

B)NAFTA

C)NATO

D)MERCOSUR

Answer:C

Topic:InternationalTradeOrganizations

Skill:Recognition

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36)WhichofthefollowingareNOTamongtheleadersintheworld'santiglobalizationmovement?

A)MNEs

B)environmentalists

C)unionswhoseworkerslosejobsasaresultoftradepactssuchasNAFTA

D)thoseopposedtothelossofculturalidentityduetocombinationssuchastheEuropeanUnion

Answer:A

Topic:AntiglobalizationMovements

Skill:Recognition

37)Asof2007,theUnitedStatesgovernmenthasbeenawillingparticipantandcosponsorofinternationaltreatiestoreducepollutionworldwide.

Answer:FALSE

Topic:AntipollutionTreaties

Skill:Conceptual

38)Manyproblemssuchaspoverty,environmentalconcerns,andcyberattacksarebeyondthecapabilitiesofMNEsalonetocorrectandrequiregovernmentparticipationaswell.Answer:TRUE

Topic:SocialIssues

Skill:Conceptual

39)Businessriskcanbemeasuredthroughsensitivityanalysisbutfromonlytheprojectviewpoint.

Answer:FALSE

Topic:BusinessRisk

Skill:Conceptual

40)________,alsoknownasmicrorisks,arepoliticalrisksthataffecttheMNEattheprojectandcorporatelevelbutdonotoriginateatthecountrylevel.

A)Firmspecificrisks

B)Countryspecificrisks

C)Globalspecificrisks

D)Transferrisks

Answer:A

Topic:FirmspecificRisk

Skill:Recognition

41)________,alsoknownasmacrorisks,arepoliticalrisksthataffectthefirmattheprojectorcorporatelevelbutoriginateatthecountrylevel.

A)Firmspecificrisks

B)Countryspecificrisks

C)Globalspecificrisks

D)Governancerisks

Answer:B

Topic:CountryspecificRisk

Skill:Recognition

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42)Terrorism,cyberattacks,andtheantiglobalizationmovementareeachexamplesof________risks.

A)firmspecific

B)countryspecific

C)institutional

D)globalspecific

Answer:D

Topic:GlobalspecificRisk

Skill:Recognition

43)GovernanceriskduetogoalconflictbetweenanMNEanditshostgovernmentisthemainpolitical________risk.

A)firmspecific

B)countryspecific

C)globalspecific

D)culturalspecific

Answer:A

Topic:GovernanceRisk

Skill:Recognition

44)Transferriskconcernsmainlytheproblemof________.

A)governancerisk

B)culturalrisk

C)blockedfunds

D)environmentalconcerns

Answer:C

Topic:TransferRisk

Skill:Recognition

45)Macropoliticalriskanalysisislikelytoincludeallbutwhichofthefollowing?

A)analysisofacountry'shistoricalstability

B)evidenceofpresentturmoilordissatisfactionwiththecurrentgovernment

C)indicationsofeconomicstabilityorinstability

D)Alloftheabovearelikelytobeincludedinamacropoliticalanalysis.

Answer:D

Topic:MacroPoliticalRisk

Skill:Recognition

46)AccordingtosurveysreportedinMarch2007,whichcountryhadthehighestvalue(leastrisk)onacountrywideeconomicriskscale?

A)Indonesia

B)Brazil

C)Finland

D)Russia

Answer:C

Topic:CountryEconomicRisk

Skill:Recognition

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47)NegotiationsundertheGeneralAgreementonTariffsandTrade(GATT)haveNOThadmuchimpactonreducingtheleveloftariffsoverthelastseveraldecades.

Answer:FALSE

Topic:GATT

Skill:Conceptual

48)WhichofthefollowingwouldNOTbeconsideredanontariffbarriertotrade?

A)inconsistentcustomsandadministrativeentryprocedures

B)undulystringentordiscriminatingstandardsimposedonimportsinthenameofprotectinghealth,safety,andquality

C)establishedimportproceduresthatmakeimportingmoredifficult

D)Alloftheabovearenontarifftradebarriers.

Answer:D

Topic:NontariffTradeBarriers

Skill:Conceptual

49)WhichofthefollowingisNOTanestablishedregionalmarketdesignedinparttoreduceprotectionismandtradebarriersamongmembers?

A)TheEuropeanUnion

B)NAFTA

C)MERCOSUR

D)Allareregionalmarkets.

Answer:D

Topic:RegionalMarkets

Skill:Recognition

50)Thespeedatwhichinventorymovesthroughamanufacturingprocessisknownas________.

A)supplychainmanagement

B)workingcapitalmanagement

C)inventoryvelocity

D)warpspeed

Answer:C

Topic:InventoryControl

Skill:Recognition

51)AsaresultoftheterroristattacksofSeptember11,2001,manyfirmshaveemployedawiderangeoftacticstoensurecontinuedflowofinventoryinthefaceofgovernmentstepstocurbterrorism.Whichofthefollowingisaninventorysourcingstrategyresponse(asopposedtoaninventorymanagementresponse,oratransportationresponse)?

A)carryingmoreinventoryonhand

B)minimizecrossborderexposurefromsuppliers

C)shiftingtoaircargoshipmentsinsteadofcohabitationofproductsandpassengersoncommercialairflights

D)increasingtheonhandsupplyofcriticalparts

Answer:B

Topic:InventoryControl

Skill:Conceptual

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52)Overthelastthreedecades,thecountryofZimbabwehassuffered________.

A)hyperinflation

B)hyperunemployment

C)adrasticreductioninlifeexpectancy

D)alloftheabove

Answer:D

Topic:Zimbabwe

Skill:Recognition

53)Zimbabweranks150thonthe2007CorruptionPerceptionIndex.Thus,despitethecountry'seconomicwoes,itstillperceivedashavinglowlevelsofgovernmentcorruption.Answer:FALSE

Topic:Zimbabwe

Skill:Recognition

54)TheUSAhasavalueof7.4onthe2007CorruptionPerceptionIndex.AlthoughthisvaluedoesnotputtheUSAatthetopofthelist,theUSAisstillperceivedasoneofthe________leastcorruptcountriesintheworldinwhichtodobusiness.

A)5

B)10

C)15

D)20

Answer:D

Topic:CorruptionLevels

Skill:Recognition

18.2EssayQuestions

1)Generally,firmsadjustfortheadditionalriskfrominvestinginforeignlocationsusingoneoftwotechniques.Listandexplainthetwotechniques,citeadvantagesanddisadvantagesofeach,andprovideanexampleofwheneachmightbemostappropriate.

Answer:Riskisgenerallyaccountedforbydevelopingriskadjustedcashflows,orbyusingariskadjusteddiscountrate.Riskadjustedcashflowswouldconsiderthetechniquesweuseindomesticcapitalbudgeting,butthenalsoconsiderthevariabilitythatcouldbebroughtonbychangingexchangerates,temporaryblockageoffunds,uncertaindemandinforeignmarketsthatconsumeyourserviceorproducts,andothervariousformsofpoliticalrisk.

Ariskadjusteddiscountrateattemptstoaccountfortheadditionalrisksjustmen