Which of the Statements Below Is FALSE

question 91

Multiple Choice

Which of the statements below is FALSE?

• A) Political risk involves changes in a foreign government. At one extreme is the case in which a local government "takes over" the assets of the company and nationalizes it.
• B) Political risk involves changes in a foreign government. At one extreme is the case in which a government encourages foreign investment and gives breaks to companies willing to move operations locally.
• C) There are three basic defensive mechanisms that can guard against the extreme case of nationalized assets. These include keeping critical operations private, financing operations and assets with local money, and receiving primary inputs outside the local economy.
• D) One way that a multinational firm can minimize the potential of nationalization of assets by a foreign government is to share key elements of operations with the government.

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Definitions:

Exchange Rate Appreciation

Exchange rate appreciation refers to the increase in value of one currency relative to another, meaning you need fewer units of the appreciating currency to buy one unit of another currency.

Domestic Deflation

A decline in the general price level of goods and services within a domestic economy over a period of time.

Exports and Imports

Describes goods and services sold to other countries (exports) and goods and services purchased from other countries (imports).

Flexible Exchange Market

A foreign exchange system where the value of currencies are determined by market forces without direct government intervention.