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2) Which of the following is NOT one of the stages at which MNEs can react to the potential for
blocked funds?
A) prior to investing
B) during operations
C) reinvesting in the local country when funds cannot be moved
D) all of the above are stages at which MNEs can react
3) A ________ loan, also known as ________ is a parent-to-affiliate loan channeled through a
financial intermediary such as a large commercial bank.
A) fronting; link financing
B) parallel; a back-to-back loan
C) fronting; a back-to-back loan
D) link financing; parallel loan
4) Which of the following is NOT a typical characteristic of a fronting loan made to an
international subsidiary?
A) The parent makes a deposit equal to the size of the desired loan into a large commercial bank.
B) The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly
higher interest rate.
C) The lending bank is located in the subsidiary's country.
D) All of the above are typical characteristics of a fronting loan.
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5) Which of the following could be considered an example of forced reinvestment if the
blockage of funds was expected to be temporary?
A) vertical reinvestment by an automobile manufacturer to buy parts suppliers and showrooms
B) a lumber cutting company subsequently builds a paper mill with blocked funds
C) purchase of local money market instruments and short-term loans
D) all of the above
6) A country can react to the potential for blocked funds prior to making an investment, during
operations, or by investing in the local country in assets than maintain their value.
7) Banks are very hesitant to engage in fronting loans because of the low probability of
repayment and thus their risk exposure up to a 100% loss.
8) What are blocked funds? List and explain two of the three methods the authors list in this
chapter for dealing with blocked funds.
Answer: Blocked funds are those that have been restricted from foreign exchange in some
fashion by the government of the host country. If this is a potential problems firms take a number
17.8 Country-Specific Risk: Cultural and Institutional Risk
1) Of the following, which was NOT identified by the authors as a type of cultural difference that
MNEs must consider when expanding to foreign countries?
A) differences in human resource norms
B) differences in religious heritage
C) differences in allowable ownership structures
D) All of the above must be considered.
2) An alternative strategy to engaging in bribery in international investments include:
A) refuse bribery outright.
B) retain local advisors to diffuse requests for bribes.
C) educate management and local employees about the firm's bribery policy.
D) all of the above
3) ________ industries are NOT typically "protected" by government policy.
A) Textiles
B) Defense
C) Agriculture
D) "Infant" industries
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4) Forming regional alliances is one way to help mitigate the practice of government
protectionism. Which of the following is NOT a regional trade organization formed by
government treaty?
A) EU
B) NAFTA
C) NATO
D) MERCOSUR
5) Define protectionism and identify the industries that are typically protected. Explain the
"infant industry" argument for protectionism.
Answer: Protectionism is defined as the attempt by a national government to protect certain of
its designated industries from foreign competition. Industries that are protected are usually
6) What are the traditional methods for countries to implement protectionism? What are some
typical non-tariff barriers to trade? How can MNEs overcome host country protectionism?
Answer: The traditional methods for countries to implement protectionism are tariff and
nontariff barriers.
17.9 Global-Specific Risk
1) Terrorism, cyber attacks, and the anti-globalization movement are each examples of ________
risks.
A) firm-specific
B) country-specific
C) institutional
D) global-specific
2) The speed at which inventory moves through a manufacturing process is known as:
A) supply chain management.
B) working capital management.
C) inventory velocity.
D) warp speed.
3) As a result of the terrorist attacks of September 11, 2001, many firms have employed a wide
range of tactics to ensure continued flow of inventory in the face of government steps to curb
terrorism. Which of the following is an inventory sourcing strategy response (as opposed to an
inventory management response, or a transportation response)?
A) carrying more inventory on-hand
B) minimizing cross-border exposure from suppliers
C) shifting to air cargo shipments instead of co-habitation of products and passengers on
commercial air flights
D) increasing the on-hand supply of critical parts
4) Many problems such as poverty, environmental concerns, and cyber attacks are beyond the
capabilities of MNEs alone to correct and require government participation as well.
5) What are the main types of political risks that are global in origin? What are the main
strategies used by MNEs to manage the globalspecific risks you have identified?
