Skip to content

FRM Part I · FRM Exam Part I · Country Risk: Determinants, Measures, and Implications

Which action by a multinational corporation is a direct operational way to reduce exposure to expropriation and transfer risk in a high-risk country?

Financing the subsidiary with local-currency debt from local banks reduces exposure to expropriation and transfer risk. Losses are shared with local creditors, liabilities match local assets, and the host government has more incentive to avoid disruptive action, unlike concentrating assets or relying solely on parent guarantees.

  1. AFinancing the local subsidiary with local-currency debt from local banksCorrect
  2. BRepatriating all earnings as intercompany loans repayable on demand
  3. CConcentrating all production in the host country
  4. DUsing only parent-guaranteed financing with no local participation

Explanation

Local borrowing aligns the subsidiary's liabilities with local assets, so expropriation or blocked transfers hurt local lenders and raise the cost of government action, reducing loss. The other choices raise or leave exposure unchanged.

Did you get it right without looking?

One question tells you little. A timed set on Country Risk: Determinants, Measures, and Implications shows your real accuracy, how long you take and where you lose marks.

Practise Country Risk: Determinants, Measures, and ImplicationsFree diagnostic mock

More Country Risk: Determinants, Measures, and Implications questions