Question

Magma, Inc. is a multinational firm with subsidiaries around the world. Magma has a new facility it owns and operates in Mozambique. Magma wants to reduce the firm's exposure to political risk in Mozambique. Each of the folSwing actions would likely accomplish this goal except Select one O a being a good corporate citizen O b purchasing capital equipment outright O c. reducing net investment exposure in the subsidiary O d. buying inputs from local suppliers

Answer 1

Being a good citizen will only act in the favor of the firm since it will help the firm to avoid the political instability and thus, the political risk. Therefore, statement a. is correct. Purchasing capital equipment will be affected by political instabilities and uncertainties. Therefore, purchasing capital equipment outright will not help in accomplishing the goal. Reducing net investment will reduce the risks, including the political risk. Therefore, this will help in accomplishing the goal. Finally, buying inputs from local suppliers will help in gaining the trust of the people and the government and thus, will reduce the political risk. Therefore, the correct answer is option b: purchasing capital equipment outright.