Companies can reduce the potential loss from host-government expropriation of their foreign subsidiaries by
　　A. Financing the subsidiary with local-country capital.
　　B. Reducing the cost of capital to reflect political risk when assessing foreign investment opportunities.
　　C. Selling products in the local country.
　　D. Structuring operations so that the subsidiary has value as a stand-alone company.
　　Answer:A
　　A is corrent. To protect their investment, local capital would be preferred. The parent company could then default on the local creditors in the event that the subsidiary is expropriated from them. The creditors’ claims would have to be satisfied by the expropriating host government.
　　B is incorrect. Risk premiums are added, not subtracted, when obtaining the cost of capital for project *uation.
　　C is incorrect. Selling products in the local country will not reduce the potential loss from expropriation.
　　D is incorrect. To reduce its exposure, the company should make foreign subsidiaries only valuable as part of the integrated corporate system. Then the subsidiaries will be less attractive targets of expropriation.