Question 1

Which one of the following is a tough-minded economic policy that may halt capital flight?

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

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

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.

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.

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

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

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

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

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 ___________.

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

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.

Accepted Answer

A structure of incentives that rewards risk taking in productive ventures indicates a healthy economic environment in the long run. This is because it encourages entrepreneurship, innovation, and investment, leading to job creation, economic growth, and overall prosperity.

Question 13

The economic experiences of Mexico,Chile,and Argentina in the recent past show that they all possessed a_________.

Accepted Answer

The economic experiences of Mexico, Chile, and Argentina in the recent past have shown that they all possessed a head of state who demonstrates strong will and leadership. This is evident in their implementation of economic policies and reforms, which were aimed at promoting economic growth and development. The strong leadership of their respective heads of state was critical in guiding and directing their respective economies towards the desired direction.

Question 14

The state's best strategy is to provide basic _________ in order to promote economic growth.

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

Accepted Answer

High tax rates discourage individuals and businesses from working, saving, and investing, which can negatively impact economic growth and stability. This can lead to decreased productivity, decreased innovation, and a lack of competitiveness in the global marketplace. Additionally, high taxes can also contribute to economic inequality and social unrest.

Question 16

degree of political risk faced by a firm operating in a foreign country

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.

Accepted Answer

Expropriation or creeping expropriation, where the government takes over or gradually takes control over private assets, is most likely to occur in the extractive sector of an economy, which includes resources such as oil, gas, minerals, and forests. This is because these resources are typically viewed as critical to national interests and are subject to greater government regulation and control.

Question 18

which one of the following countries was capital flight unusually large due to economic regulations that were considered punitive?

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

Accepted Answer

Using local financing would not be a good way to manage political risk in Nigeria as local financing would expose the company to the same political risks as before. It is better to use foreign non-recourse financing, sell oil in advance or take out political risk insurance to manage political risks in Nigeria.

Question 20

Political risk is primarily a function of

Accepted Answer

The answer of Political risk is primarily a function of
...

Quiz 6: Country Risk Analysis