An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary's ability to generate sufficient sales there. The country risk characteristic that would best address this concern is:
A) the host government's tax rates charged on remitted earnings.
B) the possibility of blocked funds.
C) the state of the economy in Germany.
D) the possibility of a withholding tax imposed by the German government.

Question

Quizplus · Accepted Answer

The state of the economy in Germany directly affects the subsidiary's ability to generate sufficient sales in the country. Factors such as consumer confidence, disposable income, and market demand are all dependent on the state of the economy. Therefore, this country risk characteristic would best address the MNC's concern. The other options, such as tax rates and withholding taxes, may also have an impact on the profitability of the subsidiary, but they are not as directly related to sales generation as the state of the economy.

An MNC Considers Direct Foreign Investment in Germany