Reason (R) : The international environment is more volatile and the domestic firm generally does not have full information about the environment.
International Risk: Assertion & Reason Analysis
Assertion (A) states that the perceived risk for a domestic firm operating internationally is considerably higher.
Reason (R) explains this is due to the greater volatility and incomplete information a domestic firm has about the international environment.
Evaluating the Statements
The assertion is correct. International operations involve factors like political instability, currency fluctuations, regulatory differences, and cultural barriers, which increase uncertainty and potential losses compared to domestic operations.
The reason is also correct. The international environment is inherently less predictable than a domestic one. Domestic firms often lack comprehensive data and understanding of foreign markets, competitors, and operational contexts, leading to information asymmetry.
Connecting Assertion and Reason
The lack of information and higher volatility (Reason R) directly contribute to the increased perceived risk (Assertion A) when a domestic firm ventures into international markets.
Final Verdict
Both Assertion (A) and Reason (R) are factually correct and Reason (R) provides a valid explanation for Assertion (A).
Important Questions from Business Environment and International Business
G20 Summit (2023) Proposed which Economic corridor including shipping and rail lines?
- According to eclectic theory of foreign direct investment, foreign direct investment will occur under which of the following conditions when they are to be uniquely combined?
A. Ownership
B. Location
C. Market power
D. Internationalization
E. Vertical integration
Choose the most appropriate answer from the options given below : Which statement best captures the difference between FDI and FPI ?
- Match List - I with List - II.Choose the correct answer from the options given below:
List - I List - II A. Greenfield Investment I. Direct Investment overseas aimed to sell the output of a firm's domestic production process B. Foreign Portfolio Investment II. Overseas investment to acquire existing facilities C. Forward Vertical FDI III. Overseas investment to create new facilities from the ground up D. Brownfield Investment IV. Investment in foreign financial instruments such as foreign stock, government bonds etc. - A possible cost of FDI to the host country is:
