2) When faced with additional risk from a foreign investment, firms typically account for the
additional risk by adjusting the discount rates or by adjusting cash flows.
3) According to the Boston Consulting Group analysis gloabl challengers have been able to have
both volume and margin.
4) According to the Boston Consulting Group gloabl challengers are companies based in rapidly
developing economies that are “shaking up” the established economic order.
17.6 Predicting Political Risk
1) ________ risks are those that affect the MNE at the local or project level, but originate at the
country level.
A) Country-specific
B) Firm-specific
C) Global-specific
D) none of the above
2) Which of the following is NOT an example of a country-specific risk?
A) transfer risk
B) war and ethnic strife
C) cultural and religious heritage
D) All of the above are examples of country-specific risk.
3) According to your authors, MNEs can anticipate government regulations that are
discriminatory or wealth depriving from a/an ________ or ________ level view.
A) foreign; domestic
B) micro; macro
C) internal; external
D) local; global
4) ________ is the ability to exercise effective control over a foreign subsidiary within a
country’s legal and political environment.
A) Political risk
B) Portfolio risk
C) Interest rate risk
D) Governance risk
5) Of the following, which would NOT be considered an issue for an investment agreement prior
to investing in a foreign country?
A) the basis for setting transfer prices
B) the right to export to third-country markets
C) provision for arbitration of disputes
D) All of the above could be negotiated prior to investing.
6) OPIC stands for:
A) Organization for the Prevention of Insufficient Capitalization.
B) Organization of Petroleum Importing Countries.
C) Overseas Private Investment Corporation.
D) Overseas Public Insurance Commission.
7) ________ is a type of political risk that OPIC does NOT cover.
A) Inconvertibility
B) Expropriation
C) War
D) OPIC covers all of the above.
8) ________ is the risk that the host government will take specific steps that prevent the foreign
affiliate from exercising control over the firm’s assets.
A) Inconvertibility
B) Expropriation
C) Business income risk
D) none of the above
9) ________ is NOT one of the three main country-specific risks as outlined by your authors.
A) Transfer risk
B) Cultural differences
C) Thin equity base
D) Protectionism
10) Governance risk due to goal conflict between an MNE and its host government is the main
political ________ risk.
A) firm-specific
B) country-specific
C) global-specific
D) cultural-specific
11) A number of institutional services provide updated country risk ratings on a regular basis.
This is an example of micro-risk information for MNEs using this data.
12) Business risk can be measured through sensitivity analysis but from only the project
viewpoint.
13) What is meant by the term “governance risk”? What is the most important type of
governance risk?
14) An investment agreement spells out specific rights and responsibilities of both the foreign
firm and the host government. What are the main financial policies that should be included in an
investment agreement?
17.7 Country-Specific Risk: Transfer Risk
1) Blocked funds are cash flows that:
A) come in regular intervals in standardized amounts or blocks.
B) have been restricted in transfer out of a local country.
C) come from a certain sector or region of the world.
D) none of the above
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.
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.
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
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.
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?
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?