Question 1

New products typically are tested in foreign markets and then introduced into the home market.

Accepted Answer

New products are usually introduced in the home market.

Question 2

The MNC is exposed to country risk when unexpected events occur in a host country.

Accepted Answer

Country risk is not the same as country risk exposure. A corporation is exposed to country risk to the extent that its value changes with unexpected events in that country.

Question 3

The main reason for investment-based foreign market entry is to minimize cultural risk.

Accepted Answer

The main reasons are the potential for higher sales and lower costs.

Question 4

Foreign direct investment requires a relatively large resource commitment from the parent firm.

Accepted Answer

Foreign direct investment involves a significant resource commitment from the parent company, as it generally involves the establishment of a subsidiary or the purchase of an existing company in a foreign country. This can require significant financial investment, as well as a commitment of management time and personnel resources.

Question 5

Contract-based modes of entry into foreign markets include licensing and franchising.

Accepted Answer

This is true, as licensing and franchising are both contract-based modes of entry into foreign markets.

Question 6

Political risk is the risk that politics in a host government will unexpectedly change the rules of the game under which businesses operate.

Accepted Answer

Political risk refers to the potential for changes in a host government's policies or regulations that may negatively impact a business or investment. These changes can include shifts in tax laws, trade policies, or even the expropriation of assets. As such, political risk is a significant concern for companies and investors operating in foreign markets.

Question 7

Licensing provides quick and relatively low-risk entry into foreign markets as long as the parent can protect its intellectual property rights.

Accepted Answer

Licensing allows a company to grant permission for another company in a foreign market to use its intellectual property, such as trademarks or patents, in exchange for royalties or fees. This can provide a quick and relatively low-risk entry into foreign markets as the licensee is responsible for production, distribution, and marketing. However, it is important for the parent company to protect its intellectual property rights to prevent unauthorized use or infringement.

Question 8

In a sense, political risk indices reflect a country's willingness to repay its loans, whereas financial risk indices reflect a country's ability to repay its loans.

Accepted Answer

Political risk indices assess factors like government stability, regulatory changes, and geopolitical tensions that could affect a country's willingness to honor its financial commitments. Financial risk indices, on the other hand, evaluate economic indicators and financial metrics to gauge a country's capacity to repay its debts.

Question 9

Political risk includes any changes in the political climate that are expected over a particular period of time.

Accepted Answer

If change can be anticipated, then it is not truly risk.

Question 10

The easiest mode of entry into foreign markets is foreign direct investment.

Accepted Answer

FDI is one of the most difficult entry modes.

Question 11

The country risk indices produced by companies that assess country risk use identical risk rating systems according to the conventions of the United Nations' Model Treatment of Country Risk.

Accepted Answer

There is no model treatment. Individual companies differentiate their products to appeal to different clientele.

Question 12

The country risk indices produced by companies that assess country risk tend to reflect the same underlying economic phenomena.

Accepted Answer

Country risk indices produced by different companies tend to consider similar economic factors such as political stability, economic growth, inflation, and external debt. Therefore, their assessments and rankings of different countries' risk levels are likely to be similar.

Question 13

Country risk is the risk that the business environment in a host country will change unexpectedly.

Accepted Answer

Country risk is the potential of economic, political, and social events in a country to affect the business climate and the conditions for operating in that country. These events could include changes in government policies, natural disasters, acts of terrorism, or civil unrest. Thus, country risk is indeed the risk that the business environment in a host country will change unexpectedly.

Question 14

Country risk indices are used by international lenders to judge the risks of lending to a particular country.

Accepted Answer

Country risk indices are commonly used by international lenders, investors and multinational companies to assess the potential risks associated with doing business in a particular country. These indices usually take into account a range of factors such as political stability, economic indicators, legal systems, and social conditions, among others. By analyzing these factors, lenders can estimate the probability of default or non-repayment of loans, and make informed decisions about whether to lend to a particular country or not.

Question 15

The objectives of foreign governments and multinational corporations are seldom in conflict.

Accepted Answer

Conflicts are even more prevalent internationally than they are domestically.

Question 16

The sales and marketing benefits of foreign direct investment are usually less than those of export entry into foreign markets.

Accepted Answer

With established operations in the foreign country, multinational corporations are able to promote their products and services more effectively.

Question 17

Foreign direct investment is when a multinational corporation builds productive capacity in a foreign country.

Accepted Answer

Foreign direct investment (FDI) refers to the investment made by a multinational corporation in a foreign country in order to establish productive capacity. This can include building factories, acquiring companies, or investing in infrastructure. FDI is a key driver of global economic growth and often results in job creation, technology transfer, and increased trade between countries.

Question 18

In the context of country risk assessment, financial risk refers to the risks of a particular financial instrument, such as a currency option contract.

Accepted Answer

Financial risk refers to unexpected events in a host country's financial, economic, or business life.

Question 19

Exporting through a foreign sales agent requires little resource commitment and helps to insulate the exporter from the costs and risks of foreign market entry.

Accepted Answer

Exporting through a foreign sales agent does not require as much resource commitment as other modes of foreign market entry such as establishing a foreign subsidiary or setting up a joint venture. The sales agent is responsible for promoting and selling the exporter's products in the foreign market, which can help to insulate the exporter from the costs and risks associated with market entry.

Question 20

Corporations often try to extend their product life cycles by entering foreign markets.

Accepted Answer

By entering foreign markets, corporations can tap into new customer bases and increase their revenue streams, which can help extend the product life cycle. They can also adapt their products to meet the local demand and preferences, which can keep the product relevant and competitive in the market.

Quiz 12: Foreign Market Entry and Country Risk Management