Multinational Financial Management by Alan Shapiro: Country Risk Analysis

Topics: Macroeconomics, Economics, Foreign exchange market Pages: 6 (972 words) Published: September 20, 2015
CHAPTER 6
Country Risk Analysis

EASY (definitional)

6.1 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

Ans: d
Section: Measuring political risk
Level: Easy

6.2 One good indicator of political risk is
a)the seriousness of capital flight
b)the level of local interest rates
c)the level of local tax rates
d)a large middle class population

Ans: a
Section: Capital flight
Level: Easy

6.3 Capital flight occurs for several reasons, most of which have to do with a)government regulations on interest rates
b)high taxes on local investments
c)the threat of government seizure of local assets
d)inappropriate economic policies

Ans: b
Section: Capital flight
Level: Easy

6.4 Expropriation or creeping expropriation is most likely in the ‑‑‑‑‑‑ sector of an economy. a)manufacturing
b)agricultural
c)construction
d)extractive

Ans: d
Section: Market-oriented versus statist policies
Level: Easy

6.5 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

Ans: d
Section: Market-oriented versus statist policies
Level: Easy

6.6 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

Ans: c
Section: Key indicators of country risk
Level: Easy

6.7 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

Ans: c
Section: Key indicators of country risk
Level: Easy

6.8 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

Ans: b
Section: key indicators of country risk
Level: Easy

6.9 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

Ans: a
Section: Key indicators of country risk
Level: Easy

6.10 The economic experiences of Mexico, Chile, and Argentina in the recent past show that they all possessed a_________. a) political party system of many factions
b) loosely drawn economic plan that is allowed to evolve over time c) political lead who is more of a manager than a leader
d) head of state who demonstrates strong will and leadership

Ans: d
Section: lessons from international debt crisis
Level: Easy

MEDIUM (applied)

6.11 When investing in a natural resource project, a mining firm would NOT add value to the project by a)taking out political risk insurance from the home government b)using foreign financing
c)selling copper in advance to customers
d)using local financing

Ans: d
Section: Key indicators of country risk
Level: Medium

6.12 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

Ans: a
Section: Economic and political factors underlying country risk Level: Medium

6.13Which one of the following is a tough-minded economic policy that may halt capital flight? a) making utilities publicly owned
b) granting government...
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