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 following actions would likely accomplish this goal except Select one: a. being a good corporate citizen b. purchasing capital equipment outright C. reducing net investment exposure in the subsidiary d. buying inputs from local suppliers

Answer 1

The answer is B. Purchasing capital equipment outright increases the investment in Mozambique and so the political risk.  

Being a good corporate citizen reduces political risk by contributing to the country.

Reducing net investment exposure in the subsidiary reduces political risk in the country as investment exposure to the country is less.

Buying inputs from local suppliers leads to relations with the local people reducing political risk as it increases the negotiation power of Magma in Mozambique.