Investment in foreign subsidiaries is less risky when:
A)laws in the host country that apply to repatriate earnings are complex.
B)the host country has higher tax rates.
C)the host country is politically unstable.
D)exchange rates are volatile.
E)the subsidiaries are geographically (globally) diversified.

Question

Quizplus · Accepted Answer

Geographical or global diversification spreads the risk across different countries and can reduce the impact of political instability, exchange rate fluctuations, and other risks specific to one location. It also allows for a more balanced portfolio and the potential to benefit from growth opportunities in multiple markets. Therefore, investment in foreign subsidiaries is less risky when the subsidiaries are globally diversified. The other options all pose significant risks and can increase the overall risk of investing in foreign subsidiaries.

Investment in Foreign Subsidiaries Is Less Risky When