Question 1

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

Accepted Answer

The answer of ________ is political risk that affects only...

Question 2

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

Accepted Answer

Macropolitical risk affects all firms in a country and is related to the overall stability and security of the country's political and economic environment. Examples include changes in government policy, civil unrest, and acts of terrorism. Micropolitical risk, on the other hand, affects specific industries or companies and is more related to regulatory changes and local political issues. Inclusive and exclusive political risk are not commonly used terms in the field of international business.

Question 3

Which of the following statements about approaches to political risk management is NOT true?

Accepted Answer

Passive political risk management encourages hedging against exposure to political hazards, while active political risk management assumes that it is difficult to systematically model political risk and that political events can be analyzed using statistical methods. Therefore, statement A is not true.

Question 4

If a foreign company is taken over by the host-country government and some form of compensation is paid,confiscation is said to have occurred.

Accepted Answer

When a foreign company is taken over by the host-country government and some form of compensation is paid, it is referred to as expropriation, not confiscation. Confiscation occurs without any compensation.

Question 5

A solid grasp of local values,customs,and traditions can help reduce a company's exposure to political risk.

Accepted Answer

Understanding and respecting local values, customs, and traditions can help a company navigate political risk in foreign markets by avoiding actions that might offend or violate the norms of the host country. This can help build relationships with local stakeholders and minimize the likelihood of backlash against the company.

Question 6

________ has one of the highest levels of macropolitical risk.

Accepted Answer

Afghanistan has been in a state of political instability for decades, with ongoing conflict and security concerns. It ranks low on the World Bank's Ease of Doing Business Index and experiences high levels of corruption. These factors contribute to a high level of macropolitical risk for businesses operating in Afghanistan.

Question 7

Expropriation involves the forced transfer of assets from a company to the government with compensation.

Accepted Answer

Expropriation is generally defined as the seizure of private property by a government or its agent without the owner's consent, often accompanied by compensation. Therefore, it is true that expropriation involves the forced transfer of assets from a company to the government with compensation.

Question 8

Expropriation is said to have occurred when a foreign national company dispossesses a home-country company through uncompetitive practices.

Accepted Answer

Expropriation refers to the act of a government taking control of a company's assets without providing compensation, regardless of the nationality of the company. Uncompetitive practices refer to unfair and anti-competitive practices that can disadvantage a home-country company, but this does not meet the definition of expropriation.

Question 9

SJC 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 would actually increase the firm's asset exposure in Angola, making it more vulnerable to political risk rather than reducing it. Reducing net investment, buying inputs from local suppliers, and being a good corporate citizen are strategies that can help mitigate political risk.

Question 10

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

Accepted Answer

Nationalization refers to the act of a government taking ownership and control of an entire industry or sector, with or without compensating the previous private owners.

Question 11

A government can limit the economic activities of a foreign firm that resists its effort to introduce home-country nationals into the company.

Accepted Answer

Governments have the power to impose laws and regulations that can restrict or limit the economic activities of foreign firms that do not comply with their policies, including the integration of home-country nationals into their workforce. These restrictions can range from fines to revoking licenses or permits to operate within the country.

Question 12

Local content regulations are primarily intended to ________.

Accepted Answer

Local content regulations are policies implemented by governments to encourage multinational enterprises (MNEs) to increase their production activities in a country. These policies typically require MNEs to use a certain percentage of local inputs in their production processes, such as raw materials, goods, or services, as a means of increasing local sourcing and employment. By doing so, local content regulations aim to support the development of domestic industries, promote technology transfer and knowledge spillovers, and stimulate economic growth and diversification. Cultural differences, contract negotiation difficulties, and local tax rates may be relevant issues for MNEs, but they are not the main focus of local content regulations.

Question 13

Among asset seizure approaches,expropriation is more common than confiscation and nationalization.

Accepted Answer

Expropriation, confiscation, and nationalization are all forms of asset seizure by a government, but their usage depends on the context and legal frameworks of specific countries. There isn't a clear hierarchy in terms of commonality, as each serves different legal and economic purposes. Nationalization often involves taking control of entire industries for public benefit, while expropriation usually compensates the original owners, and confiscation typically occurs without compensation, often for legal penalties or crimes.

Question 14

Lobbying is the policy of hiring people to represent a company's views on political matters.

Accepted Answer

Lobbying involves hiring professional representatives to influence government officials and lawmakers on behalf of a company or organization. This can include advocating for specific policies, promoting certain industry interests, or opposing regulations that would be detrimental to the company's bottom line.

Question 15

Christopher Electronics plans to expand into foreign markets.Top executives want the firm to focus only on locations where the rule of law prevails.Which of the following should most likely be considered by Christopher?

Accepted Answer

Wealthier, westernized countries are more likely to have established and stable systems of law and order, making them a safer bet for a business looking to expand into foreign markets. This reduces the likelihood of legal or ethical issues arising that could threaten the company's reputation or profitability. Developing and emerging economies may not have robust legal systems or may be subject to corruption, making them riskier for businesses to operate in. Countries with totalitarian-style governments may also have unpredictable or unstable legal environments, making them less attractive options.

Question 16

CADE Enterprises,a U.S.manufacturer,received assistance from the Overseas Private Investment Corporation when it expanded operations into Saudi Arabia.Which of the following types of support did CADE most likely receive from OPIC?

Accepted Answer

The Overseas Private Investment Corporation (OPIC) provides political risk insurance to U.S. businesses that invest in foreign countries. This insurance protects the business from any loss due to political instability or government interference in the foreign country where it is operating. Therefore, it is most likely that CADE received political risk insurance from OPIC when it expanded operations into Saudi Arabia.

Question 17

Foreign properties expropriated by a government cannot be reclaimed.

Accepted Answer

Foreign properties expropriated by a government can sometimes be reclaimed through legal or diplomatic means, depending on the laws and policies of the country in question and any relevant international agreements or treaties.

Question 18

Explain the three types of property seizure.Why might property seizure be a risk for a business operating in a totalitarian nation?

Accepted Answer

The answer of Explain the three types of property seizure.Why...

Question 19

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

Accepted Answer

Country risk refers to the potential for loss created by the legal and political environments within a country. Therefore, the immediate cause of country risk is indeed a legal or political factor.

Question 20

Civil conflict,tax discrimination,weak legal systems,and terrorist actions are political risks faced by MNEs operating in foreign countries.

Accepted Answer

Civil conflict, tax discrimination, weak legal systems, and terrorist actions are all potential political risks that multinational enterprises (MNEs) may encounter while operating in foreign countries. These risks can cause significant damage to an MNE's operations, including loss of assets, business interruption, and reputational harm. It is essential for MNEs to assess and manage these risks carefully to protect their interests and ensure they operate in a stable and secure environment.

Quiz 4: Economic Development of Nations