Unit 3: The External Environment and Challenges - Practice Quiz

1 What is political risk in international business?

2 Which risk results from changes in currency exchange rates?

3 What does country risk assessment primarily examine?

4 Which situation is an example of commercial risk?

5 Which method can reduce the risk of non-payment in international trade?

6 What is economic risk in an international market?

7 Why do international firms diversify across countries?

8 What does foreign direct investment (FDI) generally involve?

9 Which activity is an example of exporting?

10 Which development has helped expand international trade in services?

11 What is a multinational enterprise (MNE)?

12 What is portfolio investment?

13 What does a global value chain describe?

14 What is e-commerce in an international trade context?

15 How can import tariffs influence international trade?

16 Which cultural factor can influence demand in a foreign market?

17 How does political stability generally affect foreign investment?

18 Why is transport infrastructure important for international trade?

19 How can environmental regulations affect foreign investment?

20 What effect can a regional trade agreement have on member countries?

21 A company earns revenue in Brazilian reais but reports profits in euros. The real is expected to depreciate before the revenue is converted. Which risk is the company primarily facing?

22 A manufacturer is comparing two countries for a new factory. Country X has lower labor costs but frequent policy reversals, while Country Y has higher costs and stable regulations. Which method best supports a balanced decision?

23 After a foreign government imposes restrictions that prevent a subsidiary from sending profits to its parent company, which type of country risk has materialized?

24 An exporter wants protection against nonpayment caused by a foreign buyer's insolvency or political disruption in the buyer's country. Which measure is most appropriate?

25 A project has a 70% probability of earning $12 million and a 30% probability of losing $5 million. What is its expected monetary value?

26 A firm fears that a host government may change environmental rules during a 15-year infrastructure project. Which action would most directly help the firm evaluate this uncertainty before investing?

27 A company enters a politically uncertain market through a joint venture with a well-established local firm rather than a wholly owned subsidiary. What is the main risk-related advantage?

28 A multinational adds suppliers in Mexico and Poland to reduce dependence on a distant Asian production hub while remaining close to major customers. Which recent trend does this illustrate?

29 Cross-border delivery of software, online consulting, and cloud-based business services grows even when physical merchandise trade slows. Which trend best explains this outcome?

30 A foreign automobile company builds a new battery factory abroad rather than purchasing an existing producer. How should this investment be classified?

31 Governments increasingly review foreign acquisitions involving semiconductors, telecommunications, and artificial intelligence. What is the principal reason for this trend?

32 A multinational keeps production abroad but reorganizes suppliers so that most inputs come from politically aligned countries. Which strategy is it following?

33 Why might announced foreign investment values overstate the immediate increase in a host country's productive capacity?

34 A country receives substantial foreign purchases of corporate shares but little foreign managerial involvement or long-term control. These inflows are best described as:

35 A carbon-intensive steel exporter loses competitiveness after an importing market charges for the carbon embedded in imported goods. Which environmental policy most likely caused this change?

36 A solar-panel producer locates a plant where renewable electricity is abundant, environmental permitting is predictable, and low-carbon subsidies are available. Which factor combination is driving the investment?

37 Severe drought reduces water availability in a region specializing in water-intensive crops. What is the most likely medium-term effect on its trade pattern?

38 An apparel buyer requires overseas suppliers to document wastewater treatment and chemical use. What is the most direct trade effect of this requirement?

39 A logistics company shifts freight from air transport to rail and sea routes to meet an emissions target. Which trade-off is it most likely accepting?

40 Two locations have similar labor and tax costs, but one is highly exposed to flooding and hurricanes. Why might investors prefer the other location?

41 A firm is evaluating a foreign project with a 60% probability of producing an NPV of $40 million, a 25% probability of producing an NPV of $-20 million, and a 15% probability of expropriation with zero recovery. What is the project's expected NPV before considering risk aversion?

42 A multinational expects a subsidiary to remit profits from a country where currency convertibility is likely to remain available, but the government may prohibit transfers abroad. Which risk is most directly involved?

43 Two countries have identical sovereign credit ratings. Country X has stable institutions but high exchange-rate volatility, while Country Y has a fixed exchange rate sustained by rapidly declining reserves. For a long-term, import-dependent project, which conclusion is most defensible?

44 A company wants protection against discriminatory government seizure of a foreign production facility, but not against ordinary declines in market demand. Which instrument is best aligned with that objective?

45 A project's base-case NPV is $30 million. A currency crisis would reduce NPV by $50 million and has an estimated probability of 20%. Insurance eliminates the loss but costs $7 million with certainty. Ignoring risk aversion and basis risk, which choice maximizes expected NPV?

46 A multinational responds to possible import restrictions by building modular plants in several regions and retaining the ability to shift production among them. Which risk-management principle does this strategy primarily apply?

47 An analyst raises a project's discount rate to reflect political risk and also subtracts the probability-weighted cost of expropriation from projected cash flows. What is the central methodological concern?

48 Global merchandise trade grows slowly, while cross-border delivery of software, finance, and professional services expands rapidly. Which interpretation best fits this pattern?

49 Reported inward FDI rises sharply in a small financial center, but employment, fixed-capital formation, and productive capacity remain almost unchanged. Which explanation is most plausible?

50 A manufacturer moves final assembly from a low-cost distant supplier to a somewhat more expensive country that is geographically close and covered by a regional trade agreement. Which trend does this most clearly illustrate?

51 Geopolitical tensions cause firms to duplicate suppliers across politically aligned economies rather than select the globally cheapest source. What is the most likely combined effect?

52 A foreign company acquires an existing domestic producer rather than constructing a new facility. Why might headline FDI increase without an immediate increase in the host country's productive capacity?

53 World gross exports stagnate, but the foreign value-added embodied in exports declines even faster. Which structural change is most consistent with both observations?

54 Under a gravity-model interpretation, bilateral trade is generally expected to be greatest between which pair of countries, all else equal?

55 A country introduces a credible carbon price, while its major export market imposes a border charge based on embedded emissions. Which producer is most likely to gain relative export competitiveness?

56 Country A offers lower wages than Country B, but it has unreliable electricity, congested ports, and unpredictable customs clearance. For time-sensitive manufacturing, why might investors still prefer Country B?

57 A currency depreciates by 15%, but an exporter's foreign sales barely rise because it imports most components and invoices customers in its home currency. Which explanation best reconciles the outcome?

58 A nation has abundant lithium reserves but attracts little processing investment because licensing rules change frequently and contracts are weakly enforced. Which environmental factor most directly explains the outcome?

59 A regional trade agreement removes internal tariffs but preserves different external tariffs and requires proof of origin. Which firm is most likely to reorganize its supply chain?

60 An aging high-income economy has strong purchasing power but a shrinking workforce, while a younger economy has rapid labor-force growth but weaker institutions. Which investment pattern is most analytically plausible?