Question 1

Operational risk refers to the risk which arises from the uncertainty about

Accepted Answer

The answer of Operational risk refers to the risk which...

Question 2

In 1992,the Enron Development Corporation,a subsidiary of the Houston-based energy company,signed a contract to build the largest-ever power plant in India,requiring a total investment of $2.8 billion.After Enron had spent nearly $300 million,the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is true?

Accepted Answer

The answer of In 1992,the Enron Development Corporation,a subsidiary of...

Question 3

Examples of operational risk include

Accepted Answer

The answer of Examples of operational risk include
...

Question 4

Countries may welcome Greenfield investments,

Accepted Answer

Greenfield investments are viewed as representing new investment and employment opportunities for the country, which is often welcomed by the government and local population.

Question 5

One particular type of political risk that MNCs and investors may face is corruption associated with the abuse of public office for private benefits.

Accepted Answer

All of the above statements are true. Corruption and demands for bribes from politicians and government officials are a common occurrence in certain parts of the world, and companies may face challenges in navigating these processes without violating laws or facing reputational damage.

Question 6

Country risk refers to

Accepted Answer

The answer of Country risk refers to
...

Question 7

In evaluating political risk,experts focus their attention on a set of key factors such as

Accepted Answer

Experts in evaluating political risk focus on a set of key factors, which may include the host country's political and government system, historical records of political parties and their relative strengths, as well as the integration of the host country into the world political and economic system. Therefore, all of the above factors are important in evaluating political risk.

Question 8

Country risk

Accepted Answer

Country risk is a comprehensive measure that includes political risk, credit risk, and other economic performance indicators. Therefore, both options A and B are correct, making option C the correct answer.

Question 9

North Korea,Iran,and Cuba are examples of

Accepted Answer

North Korea, Iran, and Cuba all have high levels of political risk due to their government structures and policies that are not always in line with international norms. Additionally, all three countries are politically and economically isolated from much of the rest of the world, increasing the risk for businesses operating in those markets.

Question 10

The communist victory in China in 1949 is an example of

Accepted Answer

The communist victory in China in 1949 was a macro risk because it was a major political and economic event that had broad implications for the region and the world. It resulted in a significant shift in power and ideology, which had significant impacts on global politics and the economy. This event had the potential to cause significant disruption to international trade and investment flows, as well as to the stability of the global financial system.

Question 11

Examples of control risk include

Accepted Answer

The answer of Examples of control risk include
...

Question 12

Examples of transfer risk include

Accepted Answer

The answer of Examples of transfer risk include
...

Question 13

Some of the risks that a U.S.based MNC can encounter in its foreign investments are: (i)- an increase in the cost of borrowing due to a rise in interest rates
(ii)- increase in inflation rates
(iii)- dumping
(iv)- unfair competition by local companies
(v)- inconvertibility of foreign currencies
(vi)- expropriation
(vii)- destruction of properties due to war,revolution,and other violent political events in foreign countries
(viii)- loss of business income due to political violence
In the U.S.,the Overseas Private Investment Corporation (OPIC)offers insurance against which of the above:

Accepted Answer

The risks covered by OPIC insurance are those related to foreign currency inconvertibility, expropriation, political violence, and war. Therefore, option B is correct.

Question 14

When evaluating a foreign investment project,it is important for the MNC to consider the effect of political risk,as a sovereign country can change "the rules of the game".To account for this

Accepted Answer

To account for the political risk, MNCs may adjust the cost of capital upward, lower the expected cash flows from the foreign project, and purchase insurance policies against the hazard of political risks. Therefore, all the options (A, B, and C) are valid and can be used to evaluate a foreign investment project.

Question 15

In evaluating political risk,experts focus their attention on a set of key factors such as

Accepted Answer

Political risk experts focus on all of the key factors mentioned, including integration into the world political and economic system, ethnic and religious stability, regional security, and economic indicators. These factors all play a role in assessing the potential political risks involved in investing or operating in a particular country.

Question 16

An increase in political risk can be managed by

Accepted Answer

Adjusting the NPV by reducing cash flows or increasing the cost of capital can help manage the financial impact of political risk. Forming a joint venture with a local company can help navigate legal and regulatory systems and gain local support. Purchasing insurance against political risk can provide a safety net in case of unexpected events. Using all of these strategies together can provide the most comprehensive approach to managing political risk.

Question 17

More than fifty percent of FDI in dollar terms

Accepted Answer

According to UNCTAD, cross-border mergers and acquisitions accounted for more than half of global FDI inflows in dollar terms in recent years.

Question 18

In 1992,the Enron Development Corporation,a subsidiary of the Houston-based energy company,signed a contract to build the largest-ever power plant in India,requiring a total investment of $2.8 billion.After Enron had spent nearly $300 million,the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is true?

Accepted Answer

The answer of In 1992,the Enron Development Corporation,a subsidiary of...

Question 19

Once a MNC decides to undertake a foreign project,it can take various measures to minimize its exposure to political risk.These include

Accepted Answer

The answer of Once a MNC decides to undertake a...

Question 20

In 1992,the Enron Development Corporation,a subsidiary of the Houston-based energy company,signed a contract to build the largest-ever power plant in India,requiring a total investment of $2.8 billion.After Enron had spent nearly $300 million,the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is true?

Accepted Answer

The answer of In 1992,the Enron Development Corporation,a subsidiary of...

Quiz 16: Foreign Direct Investment and Cross-Border Acquisitions

Operational risk refers to the risk which arises from the uncertainty about

Examples of operational risk include

Countries may welcome Greenfield investments,

One particular type of political risk that MNCs and investors may face is corruption associated with the abuse of public office for private benefits.

Country risk refers to

In evaluating political risk,experts focus their attention on a set of key factors such as

Country risk

North Korea,Iran,and Cuba are examples of

The communist victory in China in 1949 is an example of

Examples of control risk include

Examples of transfer risk include

When evaluating a foreign investment project,it is important for the MNC to consider the effect of political risk,as a sovereign country can change "the rules of the game".To account for this

In evaluating political risk,experts focus their attention on a set of key factors such as

An increase in political risk can be managed by

More than fifty percent of FDI in dollar terms

Once a MNC decides to undertake a foreign project,it can take various measures to minimize its exposure to political risk.These include