READING 16 INTRODUCTION TO GEOPOLITICS

Question 1

Which of the following best describes the study of geopolitics?
A. The analysis of political systems and elections within a country.
B. The study of international financial regulations between companies.
C. The analysis of interactions among nations influenced by geography and political factors.

Answer 1

Correct Answer: C

Explanation:
C is correct. Geopolitics is the study of how geography, politics, and power influence international relations and the behavior of nations.
A is incorrect. This describes domestic politics, not geopolitics.
B is incorrect. This pertains to international finance but lacks the broader geopolitical scope involving nations and geography.

Question 2

Geopolitical cooperation in economic matters can most likely be demonstrated by:
A. A nation increasing tariffs to protect domestic industries.
B. Countries agreeing to common standards for accounting regulations.
C. A country withdrawing from international trade agreements.

Answer 2

Correct Answer: B

Explanation:
B is correct. Harmonizing accounting standards (e.g., IFRS) is an example of economic cooperation that facilitates cross-border investment and transparency.
A is incorrect. Raising tariffs is a protectionist and competitive move.
C is incorrect. Withdrawing from trade agreements indicates less cooperation.

Question 3

Which of the following is the best example of a nonstate actor in geopolitics?
A. The World Trade Organization (WTO)
B. A national central bank
C. A multinational corporation

Answer 3

Correct Answer: C

Explanation:
C is correct. Multinational corporations are nonstate actors that influence and participate in international economic activity.
A is incorrect. WTO is an intergovernmental organization.
B is incorrect. A central bank is a state actor.

Question 4

Which factor would most likely push a country to cooperate with others in international trade?
A. It has vast farmland and food surplus.
B. It lacks arable land and relies on imported food.
C. It has self-sufficiency in all resources.

Answer 4

Correct Answer: B

Explanation:
B is correct. A lack of food resources forces a country to trade, encouraging cooperation in maintaining open trade routes.
A is incorrect. A food-surplus country is less dependent on trade for survival.
C is incorrect. Self-sufficient countries may choose to be more isolated.

Question 5

What does the term soft power most likely refer to in geopolitics?
A. The use of military strength to ensure compliance
B. The use of cultural influence to shape global preferences
C. The ability of a country to devalue its currency to gain trade advantages

Answer 5

Correct Answer: B

Explanation:
B is correct. Soft power is the ability to influence others through culture, values, and policies without using force.
A is incorrect. This refers to hard power (military force).
C is incorrect. Currency manipulation is an economic strategy, not soft power.

Question 6

Which of the following best reflects a country exercising geopolitical cooperation?
A. Imposing export restrictions on a strategic resource
B. Entering a military alliance for mutual defense
C. Building trade barriers to promote local industries

Answer 6

Correct Answer: B

Explanation:
B is correct. Military alliances (e.g., NATO) are key examples of geopolitical cooperation for mutual benefit.
A is incorrect. This is competitive, not cooperative.
C is incorrect. Trade barriers are protectionist.

Question 7

A country’s geophysical resource endowment is most likely to influence its:
A. Population growth
B. National interest hierarchy
C. Literacy rate

Answer 7

Correct Answer: B

Explanation:
B is correct. A country’s resources determine what it needs (e.g., trade for food or energy), shaping its foreign policy priorities.
A is incorrect. Population growth is influenced by many other demographic factors.
C is incorrect. Literacy rate relates to education policy, not directly to resource endowment.

Question 8

Which of the following would most likely make international cooperation easier for a country?
A. Frequent leadership changes and weak institutions
B. Strong legal systems and protection of intellectual property
C. A centralized authoritarian regime with tight control

Answer 8

Correct Answer: B

Explanation:
B is correct. Stable institutions and laws that protect rights (e.g., intellectual property) promote trust and cooperation.
A is incorrect. Weak and unstable systems reduce trust.
C is incorrect. Authoritarian regimes can hinder transparent cooperation.

Question 9

Which statement best describes the nature of geopolitical cooperation?
A. Countries are either fully cooperative or completely noncooperative.
B. Cooperation varies by issue and can change over time.
C. Cooperation is constant and determined by international law.

Answer 9

Correct Answer: B

Explanation:
B is correct. Cooperation is dynamic, issue-specific, and dependent on politics and interests.
A is incorrect. Cooperation is not binary.
C is incorrect. International law may guide but does not fix cooperation levels.

Question 10

Which scenario best illustrates how domestic politics influence a country’s geopolitical cooperation?
A. An economic crisis leads to increased international aid requests
B. A new administration decides to rejoin a climate agreement
C. A country’s capital is affected by rising sea levels

Answer 10

Correct Answer: B

Explanation:
B is correct. Political leadership changes often shift foreign policy, such as rejoining or exiting international agreements.
A is incorrect. Economic crises may drive cooperation, but the link to politics is indirect here.
C is incorrect. This is environmental impact, not political decision-making.

Question 11

A country cooperates in military alliances but maintains high trade barriers. This most likely reflects:
A. Full cooperation on all geopolitical fronts
B. A competitive stance toward diplomacy
C. Varying levels of cooperation based on national interest

Answer 11

Correct Answer: C

Explanation:
C is correct. Cooperation varies across areas. Military and economic policies may differ based on priorities.
A is incorrect. The country is not fully cooperative.
B is incorrect. Military cooperation suggests diplomatic engagement.

Question 12

Standardizing financial reporting rules like IFRS across countries is an example of:
A. A military integration initiative
B. Nonstate competition between firms
C. Economic cooperation to facilitate cross-border investment

Answer 12

Correct Answer: C

Explanation:
C is correct. Shared financial reporting standards help investors compare firms globally and foster cooperation.
A is incorrect. This is unrelated to military affairs.
B is incorrect. Standardization reduces competition barriers, not increases them.

Question 13

Which of the following best describes the role of culture in geopolitical cooperation?
A. Cultural differences always reduce cooperation.
B. Shared languages and traditions can facilitate cooperation.
C. Culture has little to no effect on geopolitics.

Answer 13

Correct Answer: B

Explanation:
B is correct. Cultural similarities, like language or shared history, often enhance cooperation.
A is incorrect. Differences don’t always reduce cooperation.
C is incorrect. Culture plays a significant role in soft power and diplomacy.

Question 14

Which of the following most likely motivates nonstate actors to support geopolitical cooperation?
A. They benefit from a lack of regulation
B. They aim to maximize local production
C. They seek efficient cross-border resource allocation

Answer 14

Correct Answer: C

Explanation:
C is correct. Nonstate actors like firms want to allocate resources where they’re most productive, which often requires cooperation.
A is incorrect. Some regulation (e.g., harmonization) actually facilitates global business.
B is incorrect. Global actors often operate internationally, not just locally.

Question 15

From a geopolitical perspective, a country is most likely to cooperate when:
A. Cooperation aligns with its strategic interests
B. Other countries pressure it to do so
C. It wants to show leadership, regardless of impact

Answer 15

Correct Answer: A

Explanation:
A is correct. Countries act based on self-interest. Cooperation is pursued when it serves their goals.
B is incorrect. External pressure may not result in cooperation unless aligned with internal priorities.
C is incorrect. Symbolic leadership is less influential than practical self-interest.

Question 16

Which of the following is most likely a characteristic of a nation closer to the globalization end of the spectrum?
A. Limiting cross-border capital movement
B. Encouraging cultural and trade exchange
C. Promoting full domestic production of goods

Answer 16

Correct Answer: B

Explanation:
B is correct. Globalized countries tend to support cross-border trade and cultural openness.
A is incorrect. Limiting capital movement is a trait of nationalism.
C is incorrect. Promoting self-sufficiency aligns with autarky, not globalization.

Question 16

Which of the following most accurately describes the term “globalization” as used in the CFA curriculum?
A. A short-term political strategy to reduce tariffs on domestic imports
B. The long-term trend toward integration of economic activity and cultures
C. A framework used to analyze military alliances and national borders

Answer 16

Correct Answer: B

Explanation:
B is correct. Globalization refers to the long-term trend of economic and cultural integration worldwide.
A is incorrect. This refers to a policy action, not the broad trend of globalization.
C is incorrect. Geopolitics may include these aspects, but this does not define globalization

Question 17

Under the globalization-nationalism and cooperation-noncooperation framework, Autarky is best described as:
A. Globalization and cooperation
B. Nationalism and noncooperation
C. Nationalism and cooperation

Answer 17

Correct Answer: B

Explanation:
B is correct. Autarky reflects national self-reliance and a lack of cooperation with other countries. For example, North Korea.
A is incorrect. This describes multilateralism.
C is incorrect. This describes bilateralism.

Question 18

Which geopolitical archetype is associated with large countries that influence others but act unilaterally?
A. Hegemony
B. Bilateralism
C. Multilateralism

Answer 18

Correct Answer: A

Explanation:
A is correct. Hegemony refers to globalization without cooperation—large powers acting independently. For example, The U.S.
B is incorrect. Bilateralism involves one-on-one cooperation, not global influence.
C is incorrect. Multilateralism implies cooperation, which Hegemony lacks.

Question 19

Which country behavior best illustrates multilateralism?
A. Pursuing trade deals with many countries via WTO agreements
B. Relying entirely on its own industries for economic production
C. Making exclusive trade deals with one or two strategic allies

Answer 19

Correct Answer: A

Explanation:
A is correct. Multilateralism involves cooperation with multiple countries, often through international institutions. For example, NATO countries.
B is incorrect. This is characteristic of autarky.
C is incorrect. This describes bilateralism, not multilateralism.

Question 20

Which scenario best represents foreign direct investment (FDI)?
A. An individual investing in an ETF tracking emerging markets
B. A firm acquiring a controlling interest in a foreign manufacturing plant
C. A trader buying and selling short-term treasury bills from abroad

Answer 20

Correct Answer: B

Explanation:
B is correct. FDI involves owning or controlling production assets abroad.
A is incorrect. This is portfolio investment, not FDI.
C is incorrect. Trading treasury bills is short-term and non-controlling—portfolio, not FDI.

Question 20

Which of the following best represents a portfolio investment flow?
A. A company opening a factory in another country
B. A citizen buying foreign government bonds
C. A government nationalizing all domestic industries

Answer 20

Correct Answer: B

Explanation:
B is correct. Buying foreign securities is portfolio investment.
A is incorrect. This is foreign direct investment (FDI).
C is incorrect. This is not an investment flow but rather a nationalist economic policy.

Question 21

Which of the following is least likely a trait of globalization?
A. Free movement of capital across borders
B. National control over all domestic media content
C. Open exchange of cultures and services

Answer 21

Correct Answer: B

Explanation:
B is correct. Controlling domestic media suggests state control and nationalism, not globalization. For example, North Korea.
A and C are core traits of globalization.

Question 22

Which pair correctly matches a geopolitical archetype with a country example?
A. Autarky – Switzerland
B. Multilateralism – European Union
C. Bilateralism – United States under the WTO

Answer 22

Correct Answer: B

Explanation:
B is correct. The EU exemplifies multilateral cooperation and globalization.
A is incorrect. Switzerland is known for bilateralism, not autarky.
C is incorrect. WTO participation implies multilateralism, not bilateralism.

Question 23

Which of the following best describes nationalism in the context of the CFA curriculum? A. A movement toward global trade integration B. A country focusing on its economic interests independently of others C. A strategy for increasing foreign investments in domestic assets

Answer 23

Correct Answer: B Explanation: B is correct. Nationalism here means pursuing national economic self-interest, often resisting globalization. A is incorrect. That defines globalization. C is incorrect. This is a goal of global openness, not nationalism.

Question 23

Which quadrant of the globalization-cooperation matrix would best describe a country engaged in many exclusive bilateral trade deals? A. Multilateralism B. Bilateralism C. Autarky

Answer 23

Correct Answer: B Explanation: B is correct. Bilateralism means cooperating one-on-one, not multilaterally. A is incorrect. That involves broad cooperation, not one-on-one. C is incorrect. Autarky avoids trade altogether.

Question 24

Which is the most likely motivation for a nonstate actor to favor globalization? A. To gain greater control over national policy B. To access new markets and investment opportunities abroad C. To increase domestic production and reduce imports

Answer 24

Correct Answer: B Explanation: B is correct. Firms and investors look abroad to reduce costs, grow profits, or diversify. A is incorrect. Policy control is not the goal of nonstate actors. C is incorrect. That reflects nationalist policy, not globalization.

Question 25

Which of the following is most consistent with regionalism? A. A nation joining OPEC to coordinate global oil policies B. A group of neighboring countries forming a regional trade bloc C. A country imposing tariffs on all its trade partners

Answer 25

Correct Answer: B Explanation: B is correct. Regionalism means cooperating multilaterally within a specific region. A is incorrect. OPEC is global in scope, not regionally limited. C is incorrect. That’s nationalist and noncooperative behavior.

Question 26

A country that exhibits openness to cultural interaction, free capital movement, and extensive trade with multiple countries is best described as: A. Multilateralist B. Bilateralist C. Autarkic

Answer 26

Correct Answer: A Explanation: A is correct. These are traits of a multilateral, globalized economy. B is incorrect. Bilateralism lacks broad multilateral trade. C is incorrect. Autarky avoids globalization entirely.

Question 27

Which of the following best characterizes the spectrum approach to geopolitical behavior? A. Nations are classified strictly into one geopolitical category B. Nations vary in degrees of globalization and cooperation C. All countries are either globalized or nationalistic

Answer 27

Correct Answer: B Explanation: B is correct. The framework treats globalization and cooperation as spectrums, not absolutes. A is incorrect. Countries rarely fit strictly into one box. C is incorrect. The spectrum allows for mixed characteristics.

Question 28

Which of the following is NOT one of the main objectives of the International Monetary Fund (IMF)? A. Promoting international monetary cooperation B. Resolving global trade disputes between nations C. Facilitating the balanced growth of international trade

Answer 28

Correct Answer: B Explanation: The IMF does not resolve trade disputes; that is the role of the World Trade Organization (WTO). Choice A is correct and one of the IMF’s stated goals. Choice C is also a key function of the IMF, aimed at supporting stable and fair trade growth globally.

Question 29

Which institution primarily provides financial and technical assistance to developing countries? A. International Monetary Fund (IMF) B. World Bank C. World Trade Organization (WTO)

Answer 29

Correct Answer: B Explanation: The World Bank focuses on development, poverty reduction, and infrastructure financing in developing countries. The IMF deals more with short-term financial stability and balance of payments issues. The WTO governs trade rules and dispute resolution, not financing.

Question 30

The World Bank includes which two institutions? A. IMF and IDA B. IBRD and IDA C. WTO and IMF

Answer 30

Explanation: The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) are the two arms of the World Bank. A and C incorrectly mix unrelated institutions.

Question 31

Which of the following best describes a main function of the WTO? A. Providing low-interest loans to poor countries B. Facilitating the flow of trade through enforcement of trade agreements C. Maintaining global exchange rate stability

Answer 31

Correct Answer: B Explanation: The WTO’s core function is to ensure trade flows smoothly by enforcing multilateral trade agreements. Choice A describes a function of the World Bank. Choice C is part of the IMF's role.

Question 32

One way the WTO reduces the risk of political or military conflict is by: A. Lending money to conflict-prone regions B. Restricting arms trade C. Channeling trade disputes through a legal resolution process

Answer 32

Correct Answer: C Explanation: The WTO reduces tensions by offering a dispute settlement system that handles trade disagreements legally and diplomatically. A is related to the World Bank or IMF. B is not within WTO's scope.

Question 33

The IMF provides funding to member countries primarily when they are experiencing: A. High inflation B. Political unrest C. Balance of payments difficulties

Answer 33

Correct Answer: C Explanation: The IMF lends to members experiencing balance of payments crises, which occur when countries cannot meet their international financial obligations. High inflation and political unrest might be related but are not the direct triggers for IMF assistance.

Question 34

Which institution is specifically tasked with promoting exchange rate stability? A. World Bank B. WTO C. IMF

Answer 34

Correct Answer: C Explanation: The IMF promotes exchange stability to prevent currency crises and ensure smooth global trade. The World Bank and WTO are not involved in exchange rate management.

Question 35

What is the primary focus of the IDA, a World Bank institution? A. Providing loans to upper-middle-income countries B. Offering interest-free credits to the world’s poorest nations C. Regulating agricultural subsidies in global trade

Answer 35

Correct Answer: B Explanation: The International Development Association (IDA) focuses on supporting the world’s poorest countries with interest-free loans and grants. A refers more to IBRD. C is within the domain of WTO, not IDA.

Question 36

The multilateral system of payments promoted by the IMF helps: A. Countries settle international payments through a unified digital currency B. Facilitate transactions between countries in a stable and efficient manner C. Eliminate the need for foreign exchange reserves

Answer 36

Correct Answer: B Explanation: The IMF supports a multilateral system where countries can exchange payments more freely and predictably, promoting global trade. A and C are inaccurate representations.

Question 37

Which of the following best describes the World Bank's overall mission? A. Regulate cross-border trade B. Promote global financial stability C. Reduce poverty through development and partnership

Answer 37

Correct Answer: C Explanation: The World Bank’s core mission is to reduce poverty and support sustainable development through funding, capacity building, and partnerships. A is WTO’s role; B fits better with IMF.

Question 38

Which of the following statements is most accurate about WTO agreements? A. They are informal guidelines countries can choose to follow B. They are legally binding contracts ratified by member countries’ parliaments C. They are enforced by the IMF and the World Bank

Answer 38

Correct Answer: B Explanation: WTO agreements are legally binding and form the legal foundation of international trade law. A is incorrect. they are not informal. C is incorrect. WTO is separate from IMF and World Bank.

Question 39

Which of the following is least likely a role of the IMF? A. Assisting countries facing currency crises B. Funding long-term infrastructure projects C. Promoting international monetary cooperation

Answer 39

Correct Answer: B Explanation: Long-term infrastructure funding is done by the World Bank, not the IMF. A and C are key functions of the IMF.

Question 40

Which organization ensures that member governments keep their trade policies within agreed limits? A. IMF B. World Bank C. WTO

Answer 40

Correct Answer: C Explanation: The WTO ensures trade policies stay within the framework of multilateral agreements, maintaining fair trade. A and B are not involved in monitoring trade policy compliance.

Question 41

Which of the following best defines geopolitical risk? A. The likelihood of fluctuations in interest rates due to central bank policies B. The possibility of events that disrupt peaceful international relations C. The chance that a company will default due to poor governance

Answer 41

Correct Answer: B Explanation: B is correct. Geopolitical risk is defined as the possibility of events that interrupt peaceful international relations. A is incorrect. Interest rate risk is a type of market risk, not geopolitical. C is incorrect. This describes governance or credit risk, not geopolitical risk specifically.

Question 42

Which of the following is an example of event risk under geopolitical risk? A. A sudden coup d'état in a developing country B. Scheduled national elections with uncertain outcomes C. A cyberattack disrupting a regional power grid

Answer 42

Correct Answer: B Explanation: B is correct. Event risks are those where timing is known (e.g., elections), but outcomes are uncertain. A is incorrect. This is an example of exogenous risk (unexpected event). C is incorrect. This is closer to a thematic risk, due to its longer-term concern (cybersecurity).

Question 43

Exogenous risk in geopolitical terms refers to: A. Risks that are predictable in timing but uncertain in impact B. Risks that occur without warning and can shock markets C. Long-term trends such as demographic shifts

Answer 43

Correct Answer: B Explanation: B is correct. Exogenous risks are unanticipated, like wars or rebellions, and often have high-impact consequences. A is incorrect. This describes event risk. C is incorrect. This is thematic risk.

Question 44

Which of the following would most likely be classified as a thematic geopolitical risk? A. A central bank’s surprise interest rate cut B. Human migration due to climate change C. Presidential elections in a G7 country

Answer 44

Correct Answer: B Explanation: B is correct. Thematic risks involve long-term known trends, such as migration or cybersecurity. A is incorrect. This is a monetary policy risk. C is incorrect. This is event risk.

Question 45

Which component is NOT directly required to forecast the effect of a geopolitical risk on investments? A. Probability B. Volatility C. Velocity

Answer 45

Correct Answer: B Explanation: B is correct. Volatility is related to asset price fluctuations but is not one of the three key components (probability, impact, velocity) used in geopolitical risk forecasting. A is incorrect. Probability (likelihood) is essential. C is incorrect. Velocity (how fast the impact occurs) is a key factor.

Question 46

High-velocity geopolitical risks are typically: A. Gradually unfolding over long periods with little market reaction B. Sudden events that can quickly affect asset prices C. Predicted months in advance with manageable consequences

Answer 46

Correct Answer: B Explanation: B is correct. High-velocity risks have short-term, sharp impacts (e.g., war outbreaks). A is incorrect. This describes low-velocity risks. C is incorrect. This could describe event risks but not necessarily high velocity.

Question 47

An example of a black swan geopolitical risk would be: A. A national election with an expected result B. A surprise military invasion by a neighboring country C. A gradual increase in regulatory ESG standards

Answer 47

Correct Answer: B Explanation: B is correct. Black swan risks are rare, unexpected events with major short-term impacts. A is incorrect. This is a predictable event risk. C is incorrect. This is a low-velocity, thematic risk.

Question 48

Investors with long time horizons are most concerned with: A. High-velocity risks like sudden coups B. Low-velocity risks such as ESG-related developments C. Short-term currency fluctuations

Answer 48

Correct Answer: B Explanation: B is correct. Long-term investors focus on long-term, slow-moving (low-velocity) risks, often tied to ESG factors. A is incorrect. High-velocity risks are more relevant to short-term traders. C is incorrect. Currency risk is not typically a geopolitical risk and is more relevant for short-term investors.

Question 49

Which combination best describes the attributes of geopolitical risk used in investment analysis? A. Probability, volatility, duration B. Impact, frequency, duration C. Probability, impact, velocity

Answer 49

Correct Answer: C Explanation: C is correct. These three (probability, impact, and velocity) are the standard attributes used to analyze geopolitical risk. A is incorrect. Volatility and duration are not part of the main geopolitical risk framework. B is incorrect. Frequency is not a core attribute in this context.

Question 50

Which country is most likely to experience reduced geopolitical risk due to its international relationships? A. A nation that is isolated and avoids foreign trade B. A country that engages actively in globalization and cooperation C. A region with a high degree of economic inequality

Answer 50

Correct Answer: B Explanation: B is correct. Countries that are cooperative and globalized generally face fewer geopolitical risks like armed conflict. A is incorrect. Isolation increases vulnerability to conflict and instability. C is incorrect. Economic inequality is a social issue, not directly tied to international relations.

Question 51

Which of the following best characterizes medium-velocity geopolitical risks? A. They result in immediate market disruptions B. They evolve slowly and often relate to environmental concerns C. They may disrupt production or raise business costs over months or years

Answer 51

Correct Answer: C Explanation: C is correct. Medium-velocity risks unfold over the medium term and can disrupt supply chains or raise input costs. A is incorrect. This describes high-velocity risk. B is incorrect. This describes low-velocity (thematic) risks.

Question 52

The COVID-19 pandemic highlighted a geopolitical risk primarily related to: A. Event risk due to predictable outbreaks B. Global supply chain disruption from globalization C. Declining national defense budgets

Answer 52

Correct Answer: B Explanation: B is correct. Globalized economies faced supply chain disruptions, a thematic risk amplified by globalization. A is incorrect. The pandemic was an exogenous risk, not an event risk. C is incorrect. Defense budgets were not the key issue.

Question 53

Which of the following is most likely true regarding geopolitical risks in highly globalized countries? A. They are immune to most types of geopolitical risk B. They may experience more supply chain-related risks C. They face higher risk of military conflict

Answer 53

Correct Answer: B Explanation: B is correct. While cooperation may reduce conflict risk, globalization increases exposure to supply chain disruptions. A is incorrect. No country is immune from all types of geopolitical risk. C is incorrect. Globalization tends to reduce, not increase, armed conflict risk.

Question 54

Why are thematic geopolitical risks important for long-term investors? A. They have immediate effects on market prices B. They shape long-term sustainability and ESG performance C. They offer arbitrage opportunities in the short run

Answer 54

Correct Answer: B Explanation: B is correct. Thematic risks impact long-term ESG trends and corporate sustainability. A is incorrect. Thematic risks develop slowly. C is incorrect. Arbitrage is unrelated to thematic risk considerations.

Question 55

Which of the following would most likely impact the risk premium for investing in a region? A. Increased geopolitical stability B. Reduction in currency exchange fees C. Government tax incentives for startups

Answer 55

Correct Answer: A Explanation: A is correct. Increased geopolitical stability lowers perceived risk, thus lowering the risk premium. B is incorrect. Currency fees affect transaction costs, not risk premium. C is incorrect. Tax incentives may boost economic activity but don’t directly impact geopolitical risk premium.

Question 56

Which of the following is most accurately described as a national security tool? A. Nationalization of an energy company B. Armed conflict between two countries C. Imposing foreign investment restrictions

Answer 56

Correct Answer: B Explanation: B is correct. Armed conflict is a national security tool because it involves direct military action to protect or assert national interests. A is incorrect. Nationalization is an economic tool, not national security. C is incorrect. Restricting foreign investment is a financial tool, not a national security one.

Question 57

Which of the following would most likely be considered a cooperative economic tool? A. Nationalization of private firms B. Formation of a common market C. Imposing voluntary export restraints

Answer 57

Correct Answer: B Explanation: B is correct. A common market is a cooperative economic tool where countries integrate their economies for mutual benefit. A is incorrect. Nationalization is a noncooperative economic action. C is incorrect. Voluntary export restraints limit trade and are noncooperative.

Question 58

An example of a noncooperative financial tool is best described as: A. Allowing free exchange of currencies B. Encouraging foreign direct investment C. Imposing capital controls on foreign investors

Answer 58

Correct Answer: C Explanation: C is correct. Capital controls restrict financial activity with other countries, making them noncooperative financial tools. A is incorrect. Free exchange of currencies is cooperative. B is incorrect. Encouraging FDI reflects cooperative behavior.

Question 59

Which of the following best describes the impact of armed conflict on a region? A. Encourages capital inflows due to increased security B. Increases migration and destroys productive assets C. Leads to currency appreciation in the region

Answer 59

Correct Answer: B Explanation: B is correct. Armed conflict leads to destruction of infrastructure and causes people to flee the region. A is incorrect. Conflict leads to insecurity, not capital inflows. C is incorrect. Conflict often causes currency depreciation, not appreciation.

Question 60

A financial tool that a country might use in cooperation with others is: A. Nationalizing a banking sector B. Enabling unrestricted currency exchange C. Banning foreign direct investment

Answer 60

Correct Answer: B Explanation: B is correct. Allowing free exchange of currencies is a cooperative financial action. A is incorrect. Nationalization is a noncooperative economic tool. C is incorrect. Banning FDI is noncooperative.

Question 61

A country that joins a monetary union with others is using a: A. Cooperative economic tool B. Noncooperative national security tool C. Noncooperative financial tool

Answer 61

Correct Answer: A Explanation: A is correct. A monetary union (e.g., eurozone) reflects economic cooperation. B is incorrect. Monetary unions are economic, not national security tools. C is incorrect. These tools are cooperative, not noncooperative.

Question 62

Which of the following tools is most likely used to protect domestic industries from foreign competition? A. Common market agreement B. Domestic content requirement C. Currency liberalization

Answer 62

Correct Answer: B Explanation: B is correct. Domestic content requirements force products to be partly or mostly made locally. A is incorrect. A common market promotes free trade, not protection. C is incorrect. Currency liberalization promotes openness, not protectionism.

Question 63

Sanctions imposed on a country’s financial institutions are best categorized as: A. Economic tools B. Financial tools C. National security tools

Answer 63

Correct Answer: B Explanation: B is correct. Sanctions targeting financial interests (e.g., freezing assets) are financial tools. A is incorrect. Though sanctions may affect the economy, they are not classified as economic tools. C is incorrect. Sanctions are sometimes used with national security tools, but not classified as such.

Question 64

Which of the following best describes a situation where a national security tool is threatened but not active? A. A country that signed a peace agreement B. A nation publicly stating it might invade another country C. A country currently in armed conflict

Answer 64

Correct Answer: B Explanation: B is correct. A public threat of invasion is a threatened national security tool, not yet active. A is incorrect. Peace agreements are meant to prevent conflict. C is incorrect. Armed conflict is active, not just threatened.

Question 65

A country restricts both foreign investment and currency exchange. This behavior is best described as: A. Cooperative use of financial tools B. Noncooperative use of financial tools C. Neutral use of economic tools

Answer 65

Correct Answer: B Explanation: B is correct. Restrictions on investment and currency flows are noncooperative financial tools. A is incorrect. This is the opposite of cooperation. C is incorrect. These are financial tools, not economic ones.

Question 66

Why might a country use nationalization as a noncooperative economic tool? A. To reduce its reliance on foreign capital B. To improve its currency exchange system C. To promote regional peace agreements

Answer 66

Correct Answer: A Explanation: A is correct. Nationalization is often used to control key industries and limit foreign influence. B is incorrect. Currency systems are part of financial, not economic tools. C is incorrect. Peace agreements are related to national security.

Question 67

Which scenario best illustrates the destruction of productive capital? A. Trade negotiations break down B. A war causes widespread factory damage C. A currency peg is removed

Answer 67

Correct Answer: B Explanation: B is correct. War destroys buildings, factories, and resources — known as productive capital. A is incorrect. Trade negotiations don’t destroy physical assets. C is incorrect. Removing a currency peg affects exchange rates, not physical capital.

Question 68

A country imposes voluntary export restraints (VERs). This action is most likely intended to: A. Promote foreign investment B. Cooperate with free trade partners C. Limit exports to protect domestic industries

Answer 68

Correct Answer: C Explanation: C is correct – VERs are limits on how much a country exports, often to protect local businesses. A is incorrect – VERs restrict trade, which may discourage investment. B is incorrect – VERs are noncooperative, not cooperative actions.

Question 69

An investor is trying to decide whether to devote time to analyzing a particular geopolitical risk. According to the CFA curriculum, what should the investor do first? A. Analyze the potential causes of the geopolitical event in detail B. Determine whether the geopolitical risk will impact global markets C. Assess the potential impact of the risk as high or low

Answer 69

Correct Answer: C Explanation: C is correct. Before going into detailed analysis, investors should assess whether the geopolitical risk is likely to have a high or low impact. This helps prioritize resources. A is incorrect because deep analysis comes later, after identifying high-impact risks. B is too narrow. the investor must assess impact broadly (company, industry, country, or global), not just globally.

Question 70

A geopolitical event is expected to affect only one specific company. This type of impact is best described as: A. Broad B. Discrete C. Global

Answer 70

Correct Answer: B Explanation: B is correct: A discrete impact affects a particular company or sector, not the entire market. A refers to events that affect countries or regions. C would be the case for geopolitical events like world wars or global sanctions.

Question 71

Which of the following is most likely to increase the effect of geopolitical risks on investment values? A. A booming economy B. A global monetary easing cycle C. An economic recession

Answer 71

Correct Answer: C Explanation: C is correct. Recessions amplify the impact of geopolitical risks because the economy is already weak, and markets are more sensitive to shocks. A is incorrect because strong economies tend to absorb shocks better. B could reduce geopolitical risk impact due to increased liquidity and investor optimism.

Question 72

An analyst uses military escalation data, oil price spikes, and FX volatility to track the likelihood of war in a region. These indicators are best described as: A. Risk multipliers B. Geopolitical catalysts C. Signposts

Answer 72

Correct Answer: C Explanation: C is correct. Signposts are data points or indicators that signal whether the likelihood of a geopolitical event is increasing or decreasing. A is a made-up term in this context. B usually refers to triggers, not signals of probability.

Question 73

Which tool is best described as a qualitative method for assessing the potential effects of geopolitical risk? A. Scenario storytelling and expert judgment B. Regression modeling and Monte Carlo simulation C. Tracking bond spreads and equity volatility

Answer 73

Correct Answer: A Explanation: A is correct. Qualitative analysis involves narrative thinking, expert opinions, and scenario building. B and C are both examples of quantitative methods.

Question 74

Which of the following best describes the primary benefit of using scenario analysis in assessing geopolitical risk? A. It guarantees accurate prediction of outcomes B. It enables pricing of geopolitical risk in financial models C. It allows investors to evaluate a range of possible outcomes and plan accordingly

Answer 74

Correct Answer: C Explanation: C is correct. Scenario analysis doesn’t predict the future but helps investors prepare for multiple outcomes. A is unrealistic because no tool can guarantee predictions. B is partially true, but the main benefit is broader planning and understanding, not just pricing.