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Multiple Choice Quiz
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1
Political risk
A)Is an example of a macro risk.
B)Arises from uncertainty regarding exchange rates.
C)Refers to the potential losses to the parent firm resulting from adverse political developments in the host country.
D)a) and c) are both correct.
2
Other things equal, a country will be perceived to have more political risk
A)The less integrated it is into the world system
B)The more stable a country’s government is.
C)The more stable its neighboring countries are.
D)With lessening income inequality.
3
Country risk
A)Is a narrower measure of risk than political risk.
B)Is a broader measure of risk than political risk.
C)Is unrelated to political risk.
D)None of the above
4
OPIC stands for
A)The Organization of Petroleum Importing Countries
B)The Olympic Potential Incubation Center
C)The Option Pricing Institute Councils
D)The Overseas Private Investment Corporation
5
Consider a country where the bribery of officials is a normal part of doing business.
A)U.S. MNC should adjust capital budgeting projects in that country by including the cost of the bribes.
B)U.S. firms are legally able to bribe foreign officials, but are not able to deduct the costs.
C)U.S. firms are legally prohibited from bribing foreign official by the Foreign Corrupt Practices Act.
D)None of the above.
6
When a MNC builds brand-new production facilities overseas, this is an example of
A)A cross-border M&A.
B)A greenfield investment.
C)Foreign direct investment
D)b) and c) are both correct
7
Imperfect factor markets drive much FDI. Which of the following markets has the most imperfections?
A)Product market
B)Labor market
C)Capital market
D)Market for raw materials.
8
Other things equal, a firm with a greater investment in intangible assets
A)Is more likely to establish foreign subsidiaries than to use licensing.
B)Is less likely to consider foreign direct investment.
C)Is less likely to establish foreign subsidiaries than licensing.
D)Is less profitable
9
When U.S. car makers began to build their own network of dealerships in Japan, this was an example of
A)Forward vertical FDI
B)Backward vertical FDI
C)Horizontal FDI
D)Both a) and c) are correct.
10
Insurance for political risk exists. How would you incorporate the cost of the insurance premium into the capital budgeting process?
A)Subtract the insurance premium from the expected cash flows from the project when computing its NPV
B)Raise the cost of capital (discount rate)
C)Adjust the NPV downward by a subjective amount.
D)None of the above.





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