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CHPTR 10to14 - Chapter 10 Managing Political Risk...

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Chapter 10 - Managing Political Risk, Government Relations, and Alliances Chapter 10 Managing Political Risk, Government Relations, and Alliances Answer Key True / False Questions 1. (p. 338) Political risk is the likelihood that a multinational corporation's foreign investment will be constrained by a host government's policies. TRUE Difficulty: Easy 2. (p. 338) Over the past decade and with the recent terrorist attacks on the U.S., political risk assessment has become less vital to MNCs. FALSE Difficulty: Medium 3. (p. 338) China's decision regarding restrictions on foreign exchange transactions is a micro political risk because it affects all MNCs. FALSE Difficulty: Hard 4. (p. 340) Micro political risk analysis is directed toward government policies and actions that influence selected sectors of the economy or specific foreign businesses. TRUE Difficulty: Easy 10-1
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Chapter 10 - Managing Political Risk, Government Relations, and Alliances 5. (p. 339) China's decision regarding restrictions on foreign exchange transactions represents a macro political risk because it affects all MNCs. TRUE Difficulty: Medium 6. (p. 342) Macro risk issues often take forms such as industry regulations, taxes of specific types of business activity and various restrictive local laws. FALSE Difficulty: Medium 7. (p. 344) Firms that are at the greatest risk in regard to expropriation are in extractive, agricultural or infrastructural industries such as utilities and transportation because of the importance of these industries to the country. TRUE Difficulty: Medium 8. (p. 345) Examples of ownership-control risks include tariffs on export and imports and well as restrictions on exports. FALSE Difficulty: Medium 9. (p. 345) Operational risks result from government policies and procedures that directly constrain the management and performance of local operations. TRUE Difficulty: Easy 10-2
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Chapter 10 - Managing Political Risk, Government Relations, and Alliances 10. (p. 345) In a conglomerate investment, the goods or services produced are not similar to those produced at home. TRUE Difficulty: Easy 11. (p. 345) Conglomerate investments usually are rated as low risk, because foreign governments see them as providing fewer benefits to the MNC and greater benefits to the country than other investments. FALSE Difficulty: Hard 12. (p. 345) Vertical investments run the risk of being taken over by government because they are export-oriented and governments like a business that helps it to generate foreign capital. TRUE Difficulty: Hard 13. (p. 345) There are three sectors of economic activity: the primary sector, the secondary sector and the service sector. FALSE Difficulty: Medium 14. (p. 347) Some MNCs attempt to manage political risk through a quantification process in which a range of variables are simultaneously analyzed to derive an overall rating of the degree of political risk in a given jurisdiction.
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