Answer (B) is correct . Political risk is the risk that a foreign government may act in a way that will reduce the value of the company’s investment. Political risk may be reduced by making foreign operations dependent on the domestic parent for technology, markets, and supplies.
Answer (A) is incorrect because Political risk may be reduced by entering into a joint venture with a company from the host country rather than from a foreign country.
Answer (C) is incorrect because Refusing to pay higher wages and higher taxes will only increase political risk.
Answer (D) is incorrect because Political risk may be reduced by financing with local capital, rather than foreign capital.
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