CH13 16

A host government would be least likely to provide incentives for direct foreign investment (DFI) into its country if the firm planning DFI:

• would compete with local firms of the host country

• would produce a good not currently available in the host country

• would produce a good and export it to other countries

• would produce a good not currently available in the host country AND would produce a good and export it to other countries

An MNC will likely benefit most from diversifying if:

• the correlations between country economies are high

• the correlations between country economies are low

• the variability of all country economy levels is high

• the correlations between country economies are low AND the variability of all country economy levels is high.

A country presently has a high level of unemployment because of weak economic conditions, and its income levels are very low. This country would most likely be an attractive target for direct foreign investment by MNCs as a result of the motive to:

• enter markets where superior profits are possible

• react to trade restrictions

• diversify internationally

• 1. use foreign factors of production

____ is not a revenue-related motive for direct foreign investment

• Attracting new sources of demand

• Fully benefiting from economies of scale

• Exploiting monopolistic advantages

• Entering profitable markets

When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____

• overvalued; high

• overvalued; low

• undervalued; high

• undervalued; low

A micro-assessment of country risk:

• is adjusted for the particular business of the firm involved.

• excludes aspects unique a particular firm or project.

• is adjusted for the particular business of the firm involved AND excludes aspects unique a particular firm or project.

• None of these are correct.

The Delphi technique:

• is a method of purchasing information about inspections of the country being evaluated.

• requires the use of discriminant analysis to assess country risk.

• involves the collection of independent opinions on country risk.

• None of these are correct.

The primary purpose of country risk analysis when applied to capital budgeting is usually to measure the effect of country risk on:

• sales

• cash flows

• the consolidated balance sheet

• the consolidated income statement

An MNC has a foreign manufacturing plant to capitalize on cheap production costs; the MNC exports all the goods produced. It should be most concerned about the country's:

• growth in gross domestic product.

• government policies designed to increase tariffs on imported goods

• local consumer purchasing habits.

• government environmental regulations and taxes on the lease or purchase of a production site.

Which of the following is not a form of financial risk?

• exchange rate movements

• inflation rates

• business license requirements imposed on an MNC by the host government

• All of these are forms of financial risk.