Companies can reduce loss from expropriation:
A) by expecting low returns from high risk foreign subsidiaries.
B) by establishing foreign subsidiaries in countries with volatile exchange rates.
C) by financing the foreign subsidiary using foreign currencies.
D) by obtaining insurance against economic losses from expropriation.
E) by investing all the funds in one foreign subsidiary.

Question

Quizplus · Accepted Answer

Obtaining insurance against economic losses from expropriation can be an effective way for companies to reduce the risk of significant financial loss from the seizure or nationalization of foreign subsidiaries. This type of insurance can potentially cover losses related to property, investments, and other assets, and can mitigate the impact of political risk in a given region or country. Other strategies, such as investing all funds in one foreign subsidiary or establishing subsidiaries in volatile foreign exchange rate countries, may increase the risk of loss from expropriation. Financing the foreign subsidiary using foreign currencies may also pose risks related to currency fluctuations and exchange rate instability. Therefore, insurance against economic losses is the best choice for mitigating the impact of expropriation.

Companies Can Reduce Loss from Expropriation