Deck 6: Political and Legal Systems in National Environments

Question 1

Describe the two elements that contribute to country risk. Provide examples of countries with high and low country risk, and explain the reasons for these two distinctions.

Answer 1

The two elements that determine a nation's country risk are the political system and legal system. A political system refers to a set of formal institutions that constitute government. It includes legislative bodies, political parties, lobbying groups, and trade unions. A political system also defines how these groups interact with each other. A legal system refers to a system for interpreting and enforcing the laws. The laws, regulations, and rules establish norms for conduct. A legal system incorporates institutions and procedures for ensuring order and resolving disputes in commercial activities, as well as protecting intellectual property, and taxing economic output. Political and legal systems are both dynamic and constantly changing. The two systems are interdependent because changes in one affect the other.
Country risk can be high or low depending on the political and legal systems of a country. In the wake of war and the emergence of a new political regime, Iraq is one of the riskiest countries. Zimbabwe is risky because of ongoing corruption (bribery and fraud) and political turmoil. By contrast, Singapore and Canada are characterized with low country risk.
Country risk may affect all firms in a country equally or only a subset. For example, unrest in Zimbabwe has tended to affect all firms in that country. By contrast, in 2017 the Venezuelan government seized a factory owned by General Motors despite the presence of several competitors in Venezuela, such as Toyota and Fiat Chrysler.

Question 2

Which of the following is the underlying principle of socialism?

A) The welfare of individuals far outweighs the welfare of society.
B) Collective welfare of people outweighs the welfare of the individual.
C) Capital and wealth should be vested in the hands of few and used primarily as a means of profit.
D) The state should protect itself from individual and group interests.

Answer 2

B

Question 3

Religion-based authoritarian states are called ________.

A) theocratic
B) secular
C) socialistic
D) atheistic

Answer 3

A

Question 4

________ are the people and organizations that support the political system and receive government resources.

A) Subsidiaries
B) Regional trade blocs
C) Constituents
D) Shell corporations

Question 5

Country risk is considered similar to ________.

A) political risk
B) commercial risk
C) currency risk
D) cross-cultural risk

Question 6

Trade unions are not a part of a country's legal system.

Question 7

Describe how the political and legal systems of a host country can both harm and benefit a foreign firm.

Question 8

Which of the following statements is TRUE of country risk?

A) Its nature remains constant over time and across nations.
B) Its intensity seldom varies over time and across nations.
C) It is present only in poor nations.
D) It is always present.

Question 9

A ________ government seeks to control not only all economic and political matters but also the attitudes, values, and beliefs of the citizenry.

A) democratic
B) socialistic
C) mixed
D) authoritarian

Question 10

Which of the following best explains why India was once characterized by high country risk?

A) Taxes and financial incentives benefited Indian businesses over foreign firms.
B) Indian business leaders distrusted most European corporations.
C) The government of India imposes many restrictions on imports and inward foreign investment.
D) Indian leaders feared the modern influences of American firms.

Question 11

Which of the following characterizes country risk?

A) The political and legal systems of adjacent nations greatly impact the country risk of nations that host foreign firms.
B) Country risk will change only after the creation of laws and regulations that affect foreign firms.
C) A nation's country risk level remains fairly constant until the election and installation of a new political leader.
D) Country risk is always present, but its nature and intensity vary over time and from country to country.

Question 12

The immediate cause of country risk is a legal or political factor.

Question 13

Country risk can be potentially present in all nations.

Question 14

Which of the following countries is considered a social democracy?

A) Belgium
B) Canada
C) India
D) Libya

Question 15

The three major types of current political systems are ________.

A) authoritarianism, socialism, and democracy
B) socialism, democracy, and monarchy
C) authoritarianism, liberalism, and fascism
D) democracy, republicanism, and oligarchy

Question 16

Which of the following terms indicates potential loss or adverse effects on company operations and profitability caused by developments in a country's political and/or legal environments?

A) commercial risk
B) currency risk
C) cross-cultural risk
D) country risk

Question 17

An individual from a country with a high degree of political risk would most likely be from ________.

A) Canada
B) Singapore
C) Iraq
D) Malaysia

Question 18

An individual from a country with a low degree of political risk would most likely be from ________.

A) Venezuela
B) Canada
C) Zimbabwe
D) Iraq

Question 19

Describe country risk and discuss how political and legal systems contribute to country risk. Explain the differences between political systems and legal systems in your answer.

Question 20

________ fundamental tenet is that capital and wealth should be vested in the state and used primarily as a means of production rather than for profit.

A) Socialism's
B) Democracy's
C) Authoritarianism's
D) Theocracy's

Question 21

Which form of government is characterized by private property rights and limited government?

A) autocratic
B) democratic
C) socialist
D) authoritarian

Question 22

Explain the connection between democracy and economic freedom. What are some of the characteristics associated with political and economic freedom?

Question 23

World Conference (Scenario)
At a world conference to be conducted in Tokyo, representatives from nearly every country in the world will gather to discuss issues related to international trade. Representative A is from a authoritarian state. Representative B is from a socialist nation. Representative C hails from a democratic society.

-Representative C is most likely from ________.

A) Canada
B) Sudan
C) North Korea
D) Zimbabwe

Question 24

A market economy is closely associated with capitalism.

Question 25

Which of the following countries is considered a mixed economy?

A) Norway
B) Russia
C) Vietnam
D) China

Question 26

A authoritarian government seeks to control not only all economic and political matters but also the attitudes, values, and beliefs of the citizenry.

Question 27

Which of the following pairs of nations are on opposite ends of the political freedom scale?

A) New Zealand and Chile
B) China and Vietnam
C) Japan and South Korea
D) Cuba and Sweden

Question 28

World Conference (Scenario)
At a world conference to be conducted in Tokyo, representatives from nearly every country in the world will gather to discuss issues related to international trade. Representative A is from a authoritarian state. Representative B is from a socialist nation. Representative C hails from a democratic society.

-Representative B is most likely from ________.

A) New Zealand
B) North Korea
C) China
D) Canada

Question 29

What has been the impact of social democracy on international business relations in some European countries?

A) Regulations have forced foreign firms to invest elsewhere.
B) Politically conscious foreign firms have begun investing in socialist nations.
C) Low income tax rates have encouraged an influx of FDI.
D) Political stability has decreased the country risk of socialist nations.

Question 30

Authoritarianism's fundamental tenet is that capital and wealth should be vested in the state and used primarily as a means of production rather than for profit.

Question 31

Explain command economies. Provide examples of nations that exhibit characteristics of command economies and why command economies are no longer common today.

Question 32

Democracy is characterized by unlimited governmental interference.

Question 33

Socialism is based on a collectivist ideology that assumes that the collective welfare of people outweighs the welfare of the individual.

Question 34

Most democracies include elements of socialism.

Question 35

Which of the following is characteristic of an effective legal system?

A) a stable and rigid framework of rules and norms across nations
B) systematically enforced laws and regulations
C) political involvement in business transactions
D) universal emphasis on religious law over common and civil law

Question 36

Provide an overview of authoritarianism, socialism and democracy. Provide examples of nations which adhere to each system.

Question 37

Democracy is closely associated with openness.

Question 38

World Conference (Scenario)
At a world conference to be conducted in Tokyo, representatives from nearly every country in the world will gather to discuss issues related to international trade. Representative A is from a authoritarian state. Representative B is from a socialist nation. Representative C hails from a democratic society.
Which of the following countries would Representative A most likely be from?

A) Denmark
B) Zimbabwe
C) Sweden
D) Australia

Question 39

Which of the following is an element of socialism often found in democratic societies?

A) government subsidies for foreign firms
B) government sponsored businesses
C) government intervention in the affairs of individuals and firms
D) government control of information technology

Question 40

In a market economy, the government can never intervene to address the inequalities that market economies sometimes produce.

Question 41

Common and Civil Law (Scenario)
Zane Computer Corporation is considering the possibility of building a new manufacturing facility in a foreign country in order to lower labor and production costs. The legal department of Zane has raised some issues regarding two countries that are the top contenders for the new facility. The legal system of Country A is based on civil law, while the legal system of Country B is based on common law. Other than the legal systems of the two countries, all other aspects are virtually identical. Zane's legal experts must determine which system would be the most beneficial to Zane in the long term.
Which of the following supports Country A over Country B?

A) Contractual noncompliance provisions are broader in scope.
B) Contracts are so detailed that they are expensive to draft.
C) higher flexibility compared to other legal systems
D) Judges confer with legislators on international business issues.

Question 42

Islamic law is also known as code law.

Question 43

Common law is more flexible than the other legal systems.

Question 44

Which of the following legal systems is largely practiced in the Middle East?

A) religious
B) socialist
C) civil
D) common

Question 45

Common law can best be described as a system ________.

A) designed from political and legislative regulations
B) derived from religious beliefs and moral values
C) based on an all-inclusive system of laws that have been codified
D) based on legal precedents set by the nation's courts

Question 46

Compare and contrast common law with civil law specifically as the two systems relate to international business.

Question 47

Islamic law is based on the ________.

A) Bible
B) Bhagavad Gita
C) Tanakh
D) Qur'an

Question 48

Describe the similarities and differences of common law and civil law, and explain how inadequate or underdeveloped legal systems pose a risk for international businesses.

Question 49

Common law originated in the United States.

Question 50

Common and Civil Law (Scenario)
Zane Computer Corporation is considering the possibility of building a new manufacturing facility in a foreign country in order to lower labor and production costs. The legal department of Zane has raised some issues regarding two countries that are the top contenders for the new facility. The legal system of Country A is based on civil law, while the legal system of Country B is based on common law. Other than the legal systems of the two countries, all other aspects are virtually identical. Zane's legal experts must determine which system would be the most beneficial to Zane in the long term.
Which of the following statements supports Country B over Country A?

A) Rules and principles form the starting point for legal reasoning and administering justice.
B) The flexibility of common law allows for judicial interpretation in unique cases.
C) Common law nations administer justice based on a structured set of rules.
D) Laws are primarily legislative in origin and based on laws passed by national and local legislatures.

Question 51

Islamic law governs relationships among people, between people and the state, and between people and a supreme being.

Question 52

Which of the following legal systems is based on legal precedents and past practices set by the nation's courts through interpretation of statutes, legislation, and past rulings?

A) common
B) religious
C) socialist
D) civil

Question 53

The U.S. Securities and Exchange Act encourages confidence in business transactions by ________.

A) protecting public companies from government scrutiny
B) evaluating the inner workings of privately owned firms
C) requiring public companies to frequently disclose their financial indicators to investors
D) shielding investors from bankruptcy and excessive taxation

Question 54

Common law is primarily judicial in origin and based on court decisions.

Question 55

Civil law is primarily legislative in origin and based on laws passed by national and local legislatures.

Question 56

The U.S. legal system is largely based on ________.

A) common law
B) social law
C) civil law
D) theocratic law

Question 57

The most widespread form of religious law is ________ law.

A) Hindu
B) Jewish
C) Islamic
D) Catholic

Question 58

Common and Civil Law (Scenario)
Zane Computer Corporation is considering the possibility of building a new manufacturing facility in a foreign country in order to lower labor and production costs. The legal department of Zane has raised some issues regarding two countries that are the top contenders for the new facility. The legal system of Country A is based on civil law, while the legal system of Country B is based on common law. Other than the legal systems of the two countries, all other aspects are virtually identical. Zane's legal experts must determine which system would be the most beneficial to Zane in the long term.
Which of the following statements is most likely applicable to Country B?

A) Local and national legislatures pass laws.
B) Ethics and morality are the underlying tenets.
C) an all-inclusive system of law that has been codified
D) detailed contracts that clearly state all potential contingencies

Question 59

Which of the following terms refers to the existence of a legal system based on clear rules and fair enforcement?

A) conciliation
B) arbitration
C) culture of law
D) rule of law

Question 60

Market forces and free trade are encouraged in authoritarian countries.

Question 61

________ is the seizure of corporate assets without compensation.

A) Confiscation
B) Expropriation
C) Embargo
D) Sanction

Question 62

Nationalization describes government seizure of an entire industry, with or without compensation.

Question 63

Special interest groups serve the interests of particular countries, industries, or causes.

Question 64

An embargo is an official ban on exports to or imports from a particular country.

Question 65

Of the five types of participants that are active in transforming political and legal systems, the private sector is the most important.

Question 66

A(n) ________ is a voluntary refusal to engage in commercial dealings with a nation or a company.

A) expropriation
B) sanction
C) boycott
D) confiscation

Question 67

________ is seizure of corporate assets with compensation.

A) Confiscation
B) Expropriation
C) Embargo
D) Sanction

Question 68

Government agencies, institutions, and public officials influence the manner in which foreign firms conduct business.

Question 69

Explain the purpose of special interest groups. How do these organizations affect international business? Provide examples to support your answer.

Question 70

The Organization for Economic Co-operation and Development (OECD) is classified as a(n) ________.

A) international organization
B) regional trade organization
C) special interest group
D) competing firm

Question 71

The European Union impacts international trade and business because of its ability to enact and enforce laws and regulations.

Question 72

Governments regulate international business activity through a complex system of institutions, agencies, and public officials. Agencies that possess such powers in the United States include the U.S. Trade Representative and the International Trade Administration (www.ita.doc.gov). In Canada these functions are handled by ________.

A) Canada's Ministry of Foreign Affairs
B) World Trade Organization
C) North American Free Trade Agreement
D) Public Works and Government Services Canada

Question 73

Confiscation is the seizure of assets with compensation.

Question 74

Boycotts and protests have the potential to harm businesses by ________.

A) preventing businesses from shipping their products to foreign markets
B) lost sales and increased costs for public relations activities
C) destroying the ability of all local firms to carry on normal business operations
D) raising concerns about a firm's foreign operations by initiating lawsuits

Question 75

A(n) ________ is a type of trade penalty imposed on one or more countries by one or more other countries.

A) confiscation
B) expropriation
C) subsidy
D) sanction

Question 76

The World Bank is classified as a(n) ________.

A) international organization
B) regional economic bloc
C) special interest group
D) competing firm

Question 77

A(n) ________ is an official ban on exports to or imports from a particular country, in order to isolate it and punish its government.

A) embargo
B) confiscation
C) expropriation
D) sanction

Question 78

The European Union is classified as a(n) ________.

A) international organization
B) regional trade organization
C) special interest group
D) competing firm

Question 79

Which of the following is a typical complaint of host-country competitors against foreign firms?

A) Foreign firms burden the host country with infrastructure requirements.
B) Foreign firms do not have to obey host-country laws and regulations.
C) Foreign firms receive financial support from host-country governments.
D) Foreign firms lure host-country workers to the home-country businesses.

Question 80

Expropriation is the term used to describe a host-country government seizing the assets of a foreign corporation and providing compensation in return.