Unit 3: The External Environment and Challenges - Practice Quiz

1 What is political risk in international business?

2 Which risk results from changes in the value of one currency compared with another?

3 What does country risk refer to?

4 Which factor is commonly examined when assessing international business risk?

5 What is commercial risk?

6 Why do international businesses assess risk before entering a foreign market?

7 Which risk is connected with differences in laws between countries?

8 What is international trade?

9 What does foreign direct investment (FDI) involve?

10 Which activity is an example of foreign direct investment?

11 What is a major reason businesses expand international trade?

12 Which development has supported the growth of global trade?

13 How has digital technology affected international business?

14 What is globalization in business?

15 Which sector has become important in recent international trade because of digital services?

16 How do natural resources influence international trade?

17 What is an example of a physical environmental factor affecting trade?

18 How can government policy influence foreign investment?

19 Why are ports important to international trade?

20 How can cultural differences affect international business?

21 A company is evaluating a project in a country where the government may impose restrictions on converting local currency into dollars. Which risk is most directly involved?

22 An exporter sells goods in euros but pays most production costs in its home currency. If the euro depreciates sharply, what is the most likely effect?

23 A firm assigns probabilities to possible exchange-rate outcomes and estimates the financial loss under each outcome. Which risk-assessment method is it using?

24 A foreign subsidiary faces a sudden change in tax regulations that reduces its expected profits. This situation is best classified as:

25 Which action would most effectively reduce a multinational firm's exposure to political risk in one host country?

26 A company has reliable information about a foreign market but cannot predict whether a new government will nationalize private firms. This situation primarily represents:

27 Before entering a new country, a firm reviews inflation, debt levels, exchange-rate stability, and the government's ability to repay loans. This assessment focuses mainly on:

28 A manufacturer moves several production stages to different countries so that each location performs the task where it is most efficient. This reflects the growth of:

29 A company establishes a wholly owned factory abroad to produce and sell goods in that market. This investment is classified as:

30 Why might a firm choose foreign direct investment instead of exporting when import tariffs in the target country are high?

31 A government introduces incentives for foreign firms that build advanced manufacturing facilities and train local workers. The policy is most likely intended to attract:

32 A global firm invests in a foreign country primarily to access its growing consumer base. This is an example of:

33 A rise in regional trade agreements is most likely to produce which immediate business effect among member countries?

34 A firm uses online platforms to sell software services directly to customers in several countries. Which trend does this activity best illustrate?

35 A country with abundant low-cost labor attracts garment production, while a country with advanced engineering skills attracts automobile research. Which environmental factor explains this difference?

36 A firm locates a warehouse near a major international port to reduce delivery time and transportation costs. This decision is mainly influenced by:

37 Consumers in a target country strongly prefer locally adapted flavors, so a food company changes its recipes before entering the market. Which environmental factor is most relevant?

38 A country imposes strict local-content requirements on foreign automobile producers. What is the most likely effect on international business?

39 A mining company invests in a country with large deposits of lithium needed for battery production. The investment is primarily influenced by:

40 A country improves roads, ports, broadband networks, and customs procedures. Which outcome is most likely?

41 A firm is evaluating a project in a country where expropriation is unlikely, but the government may require exporters to convert foreign-currency earnings at an overvalued official exchange rate. Which risk is most directly involved?

42 Two proposed foreign projects have identical expected cash flows. Project X's losses arise mainly during global recessions, while Project Y's losses arise from country-specific events unrelated to the firm's existing markets. For a geographically diversified parent, which conclusion is most appropriate?

43 An overseas subsidiary earns local currency, imports inputs priced in dollars, and sells output under fixed local-currency contracts. The local currency is expected to depreciate sharply. Which action most directly creates a natural hedge?

44 A project has a 70% probability of receiving an unrestricted annual cash flow of $12 million and a 30% probability of receiving $4 million because of capital controls. If the appropriate discount rate is 10% and the cash flow occurs one year from now, what is its risk-adjusted expected present value?

45 A country-risk score combines political stability, external liquidity, and regulatory quality. After a currency crisis, the overall score improves because political stability rises, even though foreign reserves fall below short-term external debt. What is the main analytical weakness of relying only on the aggregate score?

46 A multinational purchases political-risk insurance covering expropriation. The host government then imposes a nondiscriminatory environmental rule that raises operating costs but leaves ownership and control unchanged. Why might the insurance not pay?

47 A firm compares two entry modes in a politically volatile market: a wholly owned plant with high sunk costs and a licensing agreement with limited physical assets but substantial proprietary technology transfer. Which risk trade-off is most accurate?

48 World merchandise trade grows slowly while cross-border digitally delivered services expand rapidly. Which interpretation best reconciles these trends?

49 A country's reported inward FDI rises sharply, but most of the increase consists of loans between affiliated companies routed through special-purpose entities, while new production capacity remains flat. Which conclusion is best supported?

50 After major supply disruptions, multinational firms duplicate suppliers across several politically aligned countries instead of moving all production home. Which recent investment pattern does this most clearly represent?

51 Global FDI values increase in a year when the number and value of announced greenfield projects both decline. Which factor could most plausibly produce this divergence?

52 Suppose gross exports remain unchanged, but domestic value added embodied in those exports rises because firms replace imported intermediate inputs with local inputs. What happens to the domestic value-added share of exports?

53 A multinational reinvests profits earned by an existing foreign affiliate instead of remitting them to the parent. How is this generally treated in balance-of-payments FDI statistics?

54 A country introduces generous semiconductor subsidies, and foreign firms announce several factories but postpone construction pending regulatory approval. Which indicator would best avoid overstating realized investment?

55 Country A imposes a carbon border charge equal to the domestic carbon price on the verified emissions embodied in imports. An exporter can reduce the charge by documenting cleaner production. Which location response is most likely?

56 A drought-prone economy exports water-intensive crops at prices that do not reflect groundwater depletion. From an environmental-economics perspective, what does the trade pattern imply?

57 Two otherwise identical countries differ only in environmental enforcement. Dirty industries relocate to the country with weaker enforcement, but only after tariffs fall enough to make relocation economical. Which explanation best fits this outcome?

58 A strict environmental standard increases a domestic firm's compliance costs initially, but later stimulates a patented process that cuts energy use and raises exports. Which concept most directly explains the later export gain?

59 A trade agreement permits an environmental restriction under a general exception only if it is not applied as arbitrary discrimination or a disguised restriction on trade. Which policy design is most defensible?

60 A battery producer selects a foreign location with cheap renewable electricity, strong mineral traceability rules, and higher wages than competing locations. Which explanation best accounts for the choice?