Question 1

Political risk that affects all firms in a country is referred to as ________.

Accepted Answer

Macropolitical risk refers to political risk that affects all firms in a country, such as changes in laws, regulations, or government policies that can impact the business environment. Micropolitical risk, on the other hand, refers to political risk that affects a specific firm or industry, such as government intervention in a particular market. Inclusive and exclusive political risk are not commonly used terms in the study of political risk.

Question 2

Canada's legal system is based on bureaucratic law.

Accepted Answer

Canada's legal system is based on common law, which is derived from judicial decisions and precedents set by courts, rather than bureaucratic regulations.

Question 3

The IT department at World Airlines has recently improved the airlines' Website to help facilitate transactions. Now, when repeat customers log on to the Website, their seating preferences and billing addresses are automatically accessed. For World Airlines customers located in the European Union, the company will most likely have to ________.

Accepted Answer

The European Union has strict regulations regarding the use of cookies on websites. World Airlines would need to obtain customer permission before using cookies to automatically access their information.

Question 4

________ is the risk associated with the potential for the government to interfere with the firm's ability to move funds in and out of the country.

Accepted Answer

Transfer risk refers to the risk associated with the potential for the government to interfere with the firm's ability to move funds in and out of the country. This can happen due to changes in regulations or restrictions on currency exchange that can impact a firm's financial position, leading to potential losses. Ownership risk refers to the risk associated with the potential nationalization or expropriation of assets by the government. Operating risk refers to the risk associated with the day-to-day operations of a business, including legal and compliance risks. Exchange rate risk refers to the risk associated with the fluctuations in exchange rates when conducting transactions in different currencies.

Question 5

Which of the following is most likely a true statement about piracy on the high seas?

Accepted Answer

Piracy has been a significant problem along the Somali coast and in the Strait of Malacca for many years. Despite efforts to combat piracy, it continues to be a threat in these areas.

Question 6

Ellis Electronics is a U.S. firm with operations in Saudi Arabia. Ellis has learned that it may face expropriation. What would be the most likely result of such actions?

Accepted Answer

The answer of Ellis Electronics is a U.S. firm with...

Question 7

Britain's legal system is based on religious law.

Accepted Answer

Britain's legal system is based on common law, not religious law. However, religion may influence certain areas of law, such as marriage and divorce laws.

Question 8

The United States uses a legal system based on common law.

Accepted Answer

The United States uses a legal system based on common law, which relies on judicial decisions and precedent as a source of law.

Question 9

Pimlico Steel operates an aluminum refining plant in Jamaica. The contract between Pimlico and Jamaica requires the corporation to train Jamaican engineers in the latest processes. Jamaica has most likely required Pimlico to agree to a(n) ________.

Accepted Answer

Jamaica has most likely required Pimlico to agree to a technology transfer. A technology transfer involves the sharing of knowledge, skills, or processes from one organization to another. In this case, Pimlico is obligated to provide training in the latest processes to Jamaican engineers, which is a form of technology transfer.

Question 10

Martin, a manager at an international firm located in China, is required to monitor political risks for his employer. Which of the following would LEAST likely provide Martin with useful information?

Accepted Answer

Telecommunication firms are unlikely to provide Martin with useful information on political risks as their focus is primarily on providing communication infrastructure and services, rather than gathering and analyzing political and economic data. Consulting firms, embassy officials, and home country employees are all likely to have access to relevant information and insights on political risks.

Question 11

________ is the risk associated with the potential for the employees or operations of the firm to be threatened by changes in laws, environmental standards, tax codes, and terrorism.

Accepted Answer

Operating risk refers to the potential for the employees or operations of the firm to be threatened by changes in laws, environmental standards, tax codes, and terrorism. This type of risk is inherent in the day-to-day operations of the business and cannot be entirely eliminated.

Question 12

Chinese bookstores stopped selling counterfeit copies of the Harry Potter series when Chinese authorities intervened on behalf of the book's British publisher.

Accepted Answer

The answer of Chinese bookstores stopped selling counterfeit copies of...

Question 13

Wilfred Enterprises has foreign operations in Taiwan, India, and China. The firm pays an annual insurance premium to the Overseas Private Investment Corporation. The firm is most likely protecting itself from ________.

Accepted Answer

The Overseas Private Investment Corporation provides insurance to American companies investing abroad to protect against nationalization or expropriation of those investments by foreign governments. Therefore, Wilfred Enterprises is most likely protecting itself from nationalization.

Question 14

________ is the risk associated with the potential for the firm's property to be confiscated or expropriated.

Accepted Answer

Ownership risk refers to the risk that a firm's property may be confiscated or expropriated by a foreign government. This can be a significant risk to firms operating in countries with unstable governments or high levels of corruption, as the government may seize the firm's assets without adequate compensation. Transfer risk refers to the risk associated with the movement of funds across borders, operating risk refers to the risk associated with day-to-day operations, and exchange rate risk refers to the risk associated with changes in currency exchange rates.

Question 15

International businesses prefer the common law system because its laws affect business the same way in every country.

Accepted Answer

International businesses prefer the civil law system because it is more consistent and predictable in its application, making it easier to navigate legal issues across multiple countries. Common law systems can vary significantly in different countries and have more reliance on judicial interpretation, making them less desirable for international business.

Question 16

APO Manufacturing is a U.S. based firm that manufactures electronic equipment. The firm conducts business with a Japanese electronics firm, and a dispute has arisen between the two firms regarding intellectual property rights. APO management plans to use arbitration to resolve the problem. Which of the following best supports this decision?

Accepted Answer

Arbitration is often faster and less expensive than going to court, making it a suitable method for resolving disputes when time or cost is a concern. This is supported by the fact that APO management plans to use arbitration to resolve the dispute with the Japanese electronics firm. Choices A, B, and D do not provide a clear rationale for why APO has opted for arbitration.

Question 17

________ has one of the highest levels of macropolitical risk.

Accepted Answer

The answer of ________ has one of the highest levels...

Question 18

BGL Enterprises, a global firm, operates a facility in Angola. Managers want to reduce the firm's vulnerability to political risk in Angola. All of the following actions would most likely accomplish this task EXCEPT ________.

Accepted Answer

Purchasing capital equipment outright increases the firm's financial exposure in Angola, which could heighten vulnerability to political risk, rather than reduce it.

Question 19

Saudi Arabia's nationalization of the oil industry in the 1970s is an example of ________.

Accepted Answer

The answer of Saudi Arabia's nationalization of the oil industry...

Question 20

________ is political risk that affects only a specific firm or firms within a specific industry.

Accepted Answer

Micropolitical risk is political risk that affects only a specific firm or firms within a specific industry. This can include factors such as changes in regulations or tax policies that may impact only a certain sector, or even a particular company. This is in contrast to macropolitical risk, which refers to larger political events that can impact the entire economy or country, such as wars, coups, or major shifts in government policy.

Quiz 3: Legal, Technological, Accounting, and Political Environments