Question 1

Which of the following requires that the firm actively involve nationals in the management of the subsidiary?

Accepted Answer

Participative management requires that the firm actively involve nationals in the management of the subsidiary. This approach emphasizes employee involvement, empowerment, and decision making, which helps to increase local expertise and commitment to the success of the subsidiary. Equity sharing and development assistance do not necessarily require active involvement of nationals in management, and localization of the operation may involve hiring locals but does not guarantee their involvement in management.

Question 2

Which of the following methods is NOT a form of adaptation to the political regulatory environment?

Accepted Answer

Hedging is a financial strategy used to minimize risk and exposure to fluctuations in exchange rates, interest rates, and commodity prices. It is not a form of adapting to the political regulatory environment. Participative management, equity sharing, and localization are all methods that companies use to adapt to the political and regulatory environment.

Question 3

Which of the following is a true statement regarding economic risk?

Accepted Answer

Financial troubles in the U.S. can have a ripple effect on the entire world economy as the U.S. serves as a major player in the global economy. Therefore, this statement is true. A is not true because minor exchange-rate shifts may not necessarily pose significant economic risk. B is not true because undeveloped countries may have a high risk of economic instability due to factors such as political instability and lack of infrastructure. C is also not true as industrialized nations may have stable economies.

Question 4

All of the following are methods of managing terrorism risks by MNCs located in high-risk countries EXCEPT ________.

Accepted Answer

Flying only U.S.-based airlines may not necessarily be an effective method of managing terrorism risks as they may still be targets of terrorist attacks. The other options listed (making contributions to local charities, assembling counterterrorism teams, maintaining low corporate profiles) are all viable methods for managing terrorism risks in high-risk countries.

Question 5

Which of the following requires that a firm keep control of the means of distribution?

Accepted Answer

Market control is a type of control in which a firm holds power over its competitors and customers by controlling the means of distribution. This type of control requires the firm to maintain ownership or control over its distribution channels or market access points. Input control involves controlling the quality and quantity of resources that go into production, position control involves controlling the performance of individuals or departments within the organization, and bureaucratic control involves managing an organization through rules and regulations.

Question 6

Companies often reduce risk in foreign countries by creating dependency of a subsidiary on the host country. Which of the following is NOT a means of maintaining dependency?

Accepted Answer

Equity sharing is a means of sharing ownership in a subsidiary with a local partner, which may actually reduce the parent company's control and dependence on the host country. The other options (market control, staged contribution strategies, and position control) all involve ways of maintaining control and dependency.

Question 7

A country's ability or intention to meet its financial obligations determines its ________ risk.

Accepted Answer

The answer of A country's ability or intention to meet...

Question 8

When GM does not allow its subsidiary manufacturing company in China to sell the Chinese-made cars outside of China, GM is exercising ________.

Accepted Answer

GM is exercising market control by limiting the distribution of its subsidiary's Chinese-made cars to within China. This is a strategic decision aimed at protecting GM's existing global market position and brand image. By controlling the market distribution of its subsidiaries, GM can ensure that its products meet the company's quality standards and are sold in accordance with its policies and pricing structures.

Question 9

If a U.S. firm borrows money from a host country bank as a hedge against being forced out of operation without adequate compensation, the firms is managing political risk with ________.

Accepted Answer

Local debt financing involves borrowing money from a host country bank, which can serve as a hedge against political risk. By obtaining local financing, the firm can minimize the impact of political changes or expropriation by reducing its exposure to foreign lenders. Thus, it is an effective way of managing political risk in the context of international business. Position control, development assistance, and adaptation are not relevant to this scenario.

Question 10

Which of the following is a form of hedging?

Accepted Answer

Local debt financing is a form of hedging as it helps mitigate currency risk by matching the currency of the debt with the currency of the revenues.

Question 11

Which of the following is a method of dependency?

Accepted Answer

The answer of Which of the following is a method...

Question 12

If the Mexican peso is devalued, then an MNC operating in Mexico will most likely have to ________.

Accepted Answer

If the Mexican peso is devalued, the MNC's profits in Mexican pesos will be worth less in US dollars. As a result, repatriating profits to the home country will yield less dollars, so the MNC will likely have to repatriate less profits in dollars.

Question 13

John Mathis' four recommended methods of analyzing economic risk include all of the following EXCEPT the ________ approach.

Accepted Answer

The four methods of analyzing economic risk recommended by John Mathis are quantitative, qualitative, checklist, and automatic. Therefore, the answer is B, as it is not a method recommended by him.

Question 14

Suppose GE initiates a joint venture with a local company in Mexico as a way of adapting to risk. Which of the following strategies is GE most likely using?

Accepted Answer

Equity sharing involves forming a joint venture with a local company, where both parties share ownership and profits. This is a common strategy used by companies to mitigate risk when entering a new market or expanding operations in a foreign country.

Question 15

In 1998, what occurred as a result of the Russian ruble being devalued?

Accepted Answer

When the Russian ruble was devalued in 1998, the price of goods imported into Russia increased. This was because the devaluation made imports more expensive since it required more rubles to purchase the same amount of foreign currency. As a result, the cost of living in Russia rose significantly, causing widespread economic disruption and hardship for many citizens.

Question 16

________ means that the firm maintains control over raw materials, components, technology, and know-how.

Accepted Answer

Input control refers to the firm's ability to maintain control over its raw materials, components, technology, and know-how. This allows the firm to ensure the quality and consistency of its products or services, as well as to protect its intellectual property. Market control refers to the firm's ability to influence or regulate the price, distribution, and availability of its products or services in the marketplace. Position control and bureaucratic control are not directly related to the firm's control over its inputs.

Question 17

An MNC located in Taiwan only fills key subsidiary management jobs with expatriates or home-office managers. The MNC is exercising ________.

Accepted Answer

The MNC is exercising position control by filling key subsidiary management jobs with either expatriates or home-office managers. Position control involves monitoring and directing employee actions through job descriptions, qualifications, and job postings.

Input control involves controlling the inputs into a system, such as raw materials, equipment, or employee training. Market control involves using market mechanisms, such as pricing and competitive pressure, to control behavior. Bureaucratic control involves controlling behavior through rules, policies, and procedures. None of these are directly applicable to the situation described.

Question 18

Which of the following is NOT a generally accepted method of assessing the credit worthiness of a country?

Accepted Answer

While surveys of economic experts in a particular country can be used as part of the credit assessment process, it is not generally considered a standalone method for assessing credit worthiness. The other options (quantitative, qualitative, and checklist approaches) are more commonly used methods.

Question 19

Political risk insurance and local debt financing are both forms of ________.

Accepted Answer

Political risk insurance and local debt financing are both forms of hedging. Political risk insurance is a type of insurance policy that provides protection to businesses and investors against losses due to political risks, such as expropriation, currency restrictions, and political violence, while local debt financing involves borrowing money from local financial institutions. Both of these strategies help to mitigate the risk of investing in uncertain and volatile markets.

Question 20

Which of the following is NOT one of the primary methods of managing political risk?

Accepted Answer

Dependency, adaptation, and hedging are considered the primary methods of managing political risk. Gainsharing, on the other hand, is a strategy used in corporate management to incentivize employees by sharing profits with them. It is not a relevant method for managing political risk.

Quiz 1: Assessing the Environment Political, Economic, Legal, Technological