Question 1

Which one of the following is a tough-minded economic policy that may halt capital flight?&#10;A)making utilities publicly owned&#10;B)granting government subsidies to local firms&#10;C)imposing protective tariffs&#10;D)removing barriers to investment by foreigners

Accepted Answer

Removing barriers to investment by foreigners can attract foreign capital, thereby reducing the likelihood of capital flight by creating a more favorable investment environment.

Question 2

During the 1980s many Latin American countries believed in a policy that economic growth was best promoted by extensive state ownership which led to&#10;A)capital flight&#10;B)increased growth in GDP&#10;C)rampant deflations&#10;D)_ import subsidies

Accepted Answer

The policy of extensive state ownership led to capital flight, as investors and businesses were discouraged by the lack of economic freedom and uncertainty regarding government intervention. This, in turn, hindered economic growth rather than promoting it.

Question 3

A system that substitutes state-owned or state-guided enterprises for the private sector is known as&#10;A)socialism&#10;B)democratic socialism&#10;C)statism&#10;D)free market economy

Accepted Answer

A system that substitutes state-owned or state-guided enterprises for the private sector is known as statism. Socialism also involves state ownership of means of production, but it is a broader term that encompasses a variety of economic systems with different levels of state control. Democratic socialism emphasizes social ownership and democratic control of means of production, while a free market economy relies on private ownership and market-based pricing mechanisms without significant government intervention.

Question 4

great economic lesson of the ill-fated,post-World War II experiment in Communism is that _________ work and command economies do not.&#10;A)state subsidies&#10;B)market forces&#10;C)five-year plans&#10;D)centralized economic controls

Accepted Answer

Centralized economic controls are the correct answer because they are the opposite of market forces, which are the correct answer to the question.

Question 5

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

Accepted Answer

These characteristics are common in countries with high country risk, which refers to the potential losses that investors may face due to political and economic instability in a particular country. The large government deficit relative to GDP, high rate of money expansion, and substantial government expenditures can lead to inflation and currency devaluation, which increase investment risk. Fixed exchange rates can also be risky because they may not accurately reflect the underlying economic fundamentals, and sudden changes in exchange rates can cause significant losses for investors. Overall, these factors contribute to a high level of uncertainty and volatility in the economy, making investing in the country riskier than in more stable economies.

Question 6

When investing in a natural resource project,a mining firm would NOT add value to the project by&#10;A)taking out political risk insurance from the home government&#10;B)using foreign financing&#10;C)selling copper in advance to customers&#10;D)using local financing

Accepted Answer

Using local financing may not add value to the project because the interest rates and terms of the local financing may not be as favorable as foreign financing. Foreign financing may provide access to larger amounts of capital at lower interest rates, allowing for more efficient development and operations. Additionally, local financing may come with restrictions or requirements that limit the flexibility of the mining firm in operating the project.

Question 7

index that attempts to incorporate all of the economic,social and political factors related to country risk is the&#10;A)Profit Opportunity Recommendation rating&#10;B)Per capital income rating&#10;C)Gross domestic product&#10;D)Consumer price index

Accepted Answer

The Profit Opportunity Recommendation rating (POR) takes into account a variety of factors related to country risk, including political stability, economic indicators, and social factors. This rating system is often used by investors to assess the potential profitability of investing in a particular country, taking into account both the risks and opportunities that are present in that market. While other economic indicators such as per capita income, GDP, and consumer price index may provide insight into certain aspects of country risk, they do not incorporate as many factors into the analysis as the POR rating.

Question 8

Frequently used indicators of political risk include economic factors but NOT&#10;A)inflation&#10;B)balance-of-payment deficits&#10;C)balance-of-payment surpluses&#10;D)health care reform

Accepted Answer

The other options (inflation, balance-of-payment deficits, and balance-of-payment surpluses) are economic factors that are commonly used as indicators of political risk. However, healthcare reform is a policy issue and is not an economic factor.

Question 9

good indicator of political risk is&#10;A)the seriousness of capital flight&#10;B)the level of local interest rates&#10;C)the level of local tax rates&#10;D)a large middle class population

Accepted Answer

Capital flight is a good indicator of political risk because if investors and businesses feel that a country's political environment is unstable or risky, they may pull their money out of the country, causing a decrease in capital inflows and an increase in capital outflows. This can not only harm the country's economy, but also indicate a lack of confidence in the government and potentially lead to further political instability. Therefore, the seriousness of capital flight can be a useful indicator of the level of political risk in a country.

Question 10

What ultimately determines a nation's ability to repay foreign loans is its ability to generate ___________.&#10;A)hard currencies&#10;B)soft currencies&#10;C)more employment&#10;D)more imports

Accepted Answer

The ability to generate hard currencies, such as US dollars or euros, is crucial for a nation's ability to repay foreign loans. Soft currencies, such as the currencies of many developing countries, are not as widely accepted in international markets and can be subject to depreciation or inflation. Increased employment and imports can contribute to a nation's economic growth, but alone they do not necessarily determine its ability to repay foreign loans.

Question 11

Capital flight occurs for several reasons,most of which have to do with&#10;A)government regulations on interest rates&#10;B)high taxes on local investments&#10;C)the threat of government seizure of local assets&#10;D)inappropriate economic policies

Accepted Answer

The answer of Capital flight occurs for several reasons,most of...

Question 12

A structure of incentives that rewards risk taking in productive ventures is an indicator of long-run _____________ health for a country.&#10;A)social&#10;B)political&#10;C)economic&#10;D)spiritual

Accepted Answer

The answer of A structure of incentives that rewards risk...

Question 13

The economic experiences of Mexico,Chile,and Argentina in the recent past show that they all possessed a_________.&#10;A)political party system of many factions&#10;B)loosely drawn economic plan that is allowed to evolve over time&#10;C)political lead who is more of a manager than a leader&#10;D)head of state who demonstrates strong will and leadership

Accepted Answer

The answer of The economic experiences of Mexico,Chile,and Argentina in...

Question 14

The state's best strategy is to provide basic _________ in order to promote economic growth.&#10;A)health care services&#10;B)lifelong pensions for its workers&#10;C)economic and political stability&#10;D)natural resources

Accepted Answer

The answer of The state's best strategy is to provide...

Question 15

High tax rates are a key indicator of country risk because they&#10;A)destroy incentives to work,save,and invest&#10;B)create large government deficits relative to GDP&#10;C)involve substantial government expenditures yielding low rates of return&#10;D)corrupt a well-functioning legal system

Accepted Answer

The answer of High tax rates are a key indicator...

Question 16

degree of political risk faced by a firm operating in a foreign country&#10;A)can be determined by using a political risk index&#10;B)depends on the benefits provided by the firm&#10;C)both a and b&#10;D)depends on how the firm has structured its operations

Accepted Answer

The answer of degree of political risk faced by a...

Question 17

Expropriation or creeping expropriation is most likely in the ?????? sector of an economy.&#10;A)manufacturing&#10;B)agricultural&#10;C)construction&#10;D)extractive

Accepted Answer

The answer of Expropriation or creeping expropriation is most likely...

Question 18

which one of the following countries was capital flight unusually large due to economic regulations that were considered punitive?&#10;A)India&#10;B)Brazil&#10;C)Indonesia&#10;D)China

Accepted Answer

The answer of which one of the following countries was...

Question 19

An oil company would NOT manage its political risk in Nigeria by&#10;A)taking out political risk insurance&#10;B)using foreign non?recourse financing&#10;C)selling oil in advance&#10;D)using local financing

Accepted Answer

The answer of An oil company would NOT manage its...

Question 20

Political risk is primarily a function of&#10;A)instability in the government&#10;B)uncertainty over property rights&#10;C)the level of violence in the society&#10;D)a country's national debt

Accepted Answer

The answer of Political risk is primarily a function of&#10;A)instability...

Question 21

Which one of the following is NOT a form of direct political risk to the multinational corporation?&#10;A)currency controls&#10;B)privatization of public utilities&#10;C)changes in tax or labor laws&#10;D)regulatory restrictions

Accepted Answer

The answer of Which one of the following is NOT...

Question 22

Which of the following foreign investments would be least subject to expropriation?&#10;A)an oil well in an LDC that is providing needed foreign exchange&#10;B)a coffee plantation that is producing beans for export&#10;C)an assembly plant for automobiles located in an LDC&#10;D)a tire making plant in an LDC that is substituting for tire imports

Accepted Answer

The answer of Which of the following foreign investments would...

Question 23

Which one of the following is NOT a measure of political instability?&#10;A)the number of political parties in one nation&#10;B)frequency of changes of government&#10;C)the level of violence&#10;D)conflicts with neighboring states

Accepted Answer

The answer of Which one of the following is NOT...

Question 24

A U.S.company whose foreign property has been expropriated is most likely to receive legal aid and indemnification from&#10;A)OPIC&#10;B)the U.S.Supreme Court&#10;C)the International Center for Settlement of Investment Dispute&#10;D)the U.S.Appeals Court

Accepted Answer

The answer of A U.S.company whose foreign property has been...

Question 25

To halt capital flight,which one of the following would NOT be a constructive measure governments may take?&#10;A)cutting budget deficits&#10;B)impose comprehensive capital controls&#10;C)sell off state?owned enterprises&#10;D)allowing for freer trade

Accepted Answer

The answer of To halt capital flight,which one of the...

Deck 6: Country Risk Analysis