In lieu of suspending operations, or withdrawing from the country, a MNC will usually take one of two routes to manage political risk: adaptation or dependency. What is adaptation? What is dependency? What are the four characteristics of adaption and dependency?© BrainMass Inc. brainmass.com October 25, 2018, 8:07 am ad1c9bdddf
Adaptation is when an MNC decides that the political risk in a particular country is relatively low, or when a high risk environment is worth the potential return operations can bring, so the risk is accommodated through adaptation to the political regulatory environment. There are several means through which this can be done: 1) political risks ...
Adaptation and dependency in political risk both explained on how they can be achieved.
Solving Finance-Related Problems
1.) What factors determine whether a project's beta will be higher or lower when calculated against a domestic stock index versus a world stock index?
2.) What happens to the value of call options when the risk-free rate increases, holding everything else constant?
3.) In terms of pricing, what are the most important differences between warrants and call options?
4.) Define multinational corporation (MNC). What factors must the manager of an MNC consider that a manager of a purely domestic firm is not forced to face?
5.) Explain how a rise in the euro might affect a French company exporting wine to the U.S., and compare that to the impact on a German firm importing semiconductors from the U.S.
6.) Project A has a guaranteed payoff of $200 million, which will exactly compensate the debtholders of the firm. Project B has a 50 percent probability of a $400 million payoff and a 50 percent probability of a zero payoff. Which project do the debtholders prefer and which project do the shareholders prefer?
7.) Explain how the law of one price establishes a relationship between changes in currency values and inflation rates?
8.) What are some strategies for minimizing political risk in a developing country?
9.) How is hedging exchange rate exposure using options different from hedging using forward contracts? What does this suggest about the costs of hedging with options rather than forwards?