Which of the following is NOT a means by which a firm might hedge the political risk of an investment in another country?
a. Insurance.
b. Buy futures contracts for future delivery of the country's currency.
c. Finance the operations with local-country capital.
d. Enter into joint ventures with local-country firms.
Answer: b. Political risk is the risk related to actions by a foreign government, such as enacting legislation that prevents the repatriation of a foreign subsidiary's profit or seizing a firm's asset. Answer b is correct because purchasing or selling futures contracts is designed to hedge transaction risks relating to foreign exchange rates.