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10) Although there are different views about the purpose of a political system, most analysts agree that an essential task of a political system is to ________. A) integrate the different elements of a society into a functioning unit B) allocate scarce resources among competing users C) develop reasonable attitudes and outlooks within the population D) protect individuals within the country from foreign threats
Answer: A
14) Which of the following statements best describes a pluralistic society? A) Multiple segments of society adhere to the same political philosophy. B) Two dominant political parties rule local and federal governments. C) Different ideologies are held by different segments of society. D) Various ethnic groups belong to the official political party.
Answer: C
36) Ian, a financial manager, is preparing to transfer to Germany where he will serve as an expatriate manager of his employer's European office. With which type of legal system will Ian most likely have to deal with in Germany? A) mixed B) common C) civil D) theocratic
Answer: C
63) In some collectivist systems, such as Venezuela, politicians control media outlets and limit individual property rights in order to acquire power in the business environment.
Answer: TRUE
69) Totalitarianism is a political ideology that typically involves constant indoctrination of the population by agents of the government to eliminate dissent.
Answer: TRUE
87) International companies often must customize products to comply with local standards if they are to do business in a particular country.
Answer: TRUE
42) The largest percentage of nations, within a contiguous geographic region, that adhere to the rule of man are located in ________. A) Central Africa B) Northern Africa C) Eastern Europe D) Central America
Answer: A
51) ION Software is the registered owner of a program designed to help sort and organize incoming and outgoing e-mail. Which of the following legal conventions does ION most likely have? A) intellectual property right B) trademark credential C) patent certificate D) TRIPS permit
Answer: A
11) In a practical sense, the term political system is meant to signify the ________. A) organization of military power in a country B) working government in a country C) philosophical orientations in a country D) cultural values in a country
Answer: B
25) The march toward greater political freedoms and more expansive civil liberties, beginning in the 1970s, strongly fueled a sense of ________. A) less predictable operating conditions for companies B) the inevitability of democracy C) different rules for domestic versus international competition D) weaker property rights
Answer: B
29) ________ political risks arise from political actions, such as public corruption or a partisan judicial system, that interfere with transactions between sellers and buyers and that can significantly raise the costs of getting things done. A) Systemic B) Procedural C) Catastrophic D) Distributive
Answer: B
34) A system of ________ law sets the framework for the system of government and defines the authority and procedure of political bodies to establish laws and regulations. A) criminal B) constitutional C) civil D) commercial
Answer: B
38) A ________ law system is based on tradition, judge-made precedent, and usage and assigns a preeminent position to existing case law as a guide to dispute resolution. A) theocratic B) common C) customary D) civil
Answer: B
4) Which of the following ideas holds that a government should NOT interfere in business affairs? A) collectivism B) laissez-faire C) the rule of man D) pluralism
Answer: B
48) Local content regulations are primarily intended to ________. A) address cultural differences between local employees and expatriates B) encourage MNEs to increase production activities in a country C) address contract negotiation difficulties D) assess local tax rates on MNEs
Answer: B
53) Which of the following statements referring to intellectual property rights and violations is INCORRECT? A) Richer countries claim looser regulation of intellectual property rights will hinder innovation. B) Companies can register a global patent, trademark, or copyright through the World Trade Organization (WTO). C) The International Anti-Counterfeiting Coalition estimates international trade in counterfeit products at $600 billion a year. D) Developing markets claim tougher regulation of IPRs will slow, if not halt, their economic development
Answer: B
57) Logan Electronics has a production facility in Bolivia. Recently, the firm was taxed at a significantly higher rate than a local electronics company. Which type of political risk is Logan most likely experiencing? A) systemic B) procedural C) distributive D) catastrophic
Answer: B
9) Political systems based on the ________ paradigm, such as those of Japan and China, accept the principle that government may intervene to ensure that business practices benefit society. A) individualistic B) collectivistic C) pluralistic D) laissez-faire
Answer: B
12) The distinguishing feature of political ideologies along the political spectrum is ________, with some emphasizing its primacy and others opposing it. A) capitalism B) socialism C) freedom D) liberalism
Answer: C
47) Elite Manufacturing seeks a foreign location with a highly favorable business environment and a comprehensive legal code. Which of the following countries would be most suitable for Elite? A) Japan B) Canada C) Singapore D) United Kingdom
Answer: C
8) Which of the following countries has a collectivist orientation? A) Canada B) Australia C) Japan D) Netherlands
Answer: C
50) ________ refer(s) to the creative ideas, innovative expertise, or intangible insights that give an individual, company, or country a competitive advantage. A) Proprietary goods B) Exclusive ownership C) Restrictive goods D) Intellectual property
Answer: D
7) In a country that emphasizes collectivism, ________. A) the interests of the individual are more important than the interests of the state B) one person or political party exercises absolute control over the political and economic systems C) the needs of society and the needs of individuals are treated as equally important D) the needs of society take precedence over individual freedoms
Answer: D
77) Political risk insurance is more likely to be purchased by MNEs that apply an active approach to political risk management.
Answer: FALSE
85) Countries with a theocratic legal system encourage precise, detailed contracts whereas countries with a common legal system encourage shorter and less specific contracts.
Answer: FALSE
86) International law takes precedence over national laws in determining permissible practices in pricing, distribution, advertising, and promotion of products and services in a particular country.
Answer: FALSE
89) The International Anti-Counterfeiting Coalition estimates that international trade in counterfeit products runs less than 5 percent of the value of total world trade.
Answer: FALSE
90) The protection of intellectual property rights is very similar from country to country.
Answer: FALSE
71) The Third Wave of Democratization was partially triggered by improved communication systems.
Answer: TRUE
72) Research indicates that democracy is declining around the world and that totalitarian regimes are increasing.
Answer: TRUE
75) Civil strife, tax discrimination, weak legal systems, and terrorist actions are political risks faced by MNEs operating in foreign countries.
Answer: TRUE
76) Managers who take an active approach to political risk management are likely to rely on statistical modeling to quantify the precise degree of political risk.
Answer: TRUE
78) Multilateral development banks encourage development in risky environments through financial incentives.
Answer: TRUE
82) The rule of man, a practice that has been in play for millennia, presumes that the law is the will of the ruler, whether the king, czar, raj, or emperor.
Answer: TRUE
83) The rule of law holds that governmental authority is legitimately exercised only in accordance with written, publicly disclosed laws that have been appropriately adopted and which are enforced in keeping with established procedure.
Answer: TRUE
84) Laws on local business activities directly influence the operations of domestic and foreign companies in areas such as hiring and firing workers.
Answer: TRUE
16) In a democracy, ________. A) citizens have the right to participate in the decision-making process B) the opportunity to truly participate in the political process is restricted to a select few C) the court system is directly supervised by the political system D) the rights of the individual are merged with the state
Answer: A
2) Which of the following problems in China is blamed for the annual loss of $250 billion by American MNEs? A) intellectual property violations B) environmental hazards C) child labor violations D) embezzlement
Answer: A
22) In which of the following countries would business activity, given its status as a "not free" marketplace, be under the greatest government control? A) Vietnam B) Pakistan C) India D) Brazil
Answer: A
23) Which of the following was a notable trend in political systems during the second half of the 20th century and beginning of the 21st century? A) A wave of democratic transformations occurred as countries around the world moved away from totalitarian systems. B) A wave of theocratic revolutions occurred as people around the world looked to spirituality to guide them. C) Socialistic revolutions swept the world as countries aspired toward greater social justice. D) A totalitarian revolution swept the world as people looked to strong state leadership in uncertain times.
Answer: A
31) Which of the following statements about approaches to political risk management is NOT true? A) Passive political risk management discourages managers from fully or partially hedging their bets against exposure to political hazards. B) Passive political risk management assumes that it is difficult, if not impossible, to systematically model political risk. C) Active political risk management assumes that positive and negative political events in any country are neither independent nor random events. D) Active political risk management assumes that political events unfold in observable patterns that statistical methods can detect.
Answer: A
43) Skinner 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 Skinner? A) wealthier, westernized countries B) developing, non-Western countries C) emerging economies experiencing rapid growth D) countries inclined toward totalitarian-style government
Answer: A
52) Most counterfeit goods are made in markets in which ________ is the basis of the legal system. A) the rule of man B) the rule of law C) religious doctrine D) corporate precedent
Answer: A
55) The vigor of IPR protection is highly related to a country's stage of ________. A) economic development B) cultural heterogeneity C) natural resource development D) standardization of patent regulations
Answer: A
59) Wharton Enterprises, a U.S. firm, manufactures small kitchen appliances. The firm has recently developed an innovative blender design that Wharton executives anticipate being very profitable. Currently, Wharton has production facilities in the U.S. and China. Wharton executives are trying to determine where the new product should be manufactured. Which of the following best supports a decision to manufacture the new product in the U.S. instead of China? A) Intellectual property rights are strongly protected by U.S. patent laws. B) A strategic marketing plan can be quickly developed in the U.S. C) Contract enforcement is a simple process in the U.S. D) The U.S. is experiencing an economic recession.
Answer: A
24) Recently, the Economist Intelligence Unit investigated the status of democracies around the globe. Relying on 60 indicators that focus on the performance of free elections, civil liberties, government functioning, political participation, and political culture in a country, the study found that ________. A) almost all of the world's democracies are full democracies B) nearly half of the world's democracies qualify as "full" or "flawed" democracies C) less than a quarter of the countries studied are outright authoritarian regimes D) most democracies are hybrid political systems that share theocratic and totalitarian characteristics
Answer: B
41) Which of the following is most likely a true statement regarding the rule of law? The rule of law is a hallmark of ________. A) a totalitarian government B) a democratic government C) societies that place ultimate power in the hands of one person D) countries that are considered "partly free"
Answer: B
45) Premium Manufacturing is planning to expand operations overseas. Executives at the firm are considering a number of different countries. Which of the following countries would most likely have the lowest start-up costs? A) India B) China C) Japan D) Guatemala
Answer: B
46) Countries with a ________ legal system tend to encourage precise, detailed contracts, whereas countries with a ________ legal system tend to encourage shorter and less specific contracts. A) theocratic; mixed B) common; civil C) civil; customary D) customary; common
Answer: B
1) Which of the following is a true statement about China? A) The Chinese government's shift from communism to capitalism has led to an increase in FDI. B) China attracts FDI because the government has eliminated elaborate bureaucracies. C) The Chinese government manipulates market activities for political purposes. D) China lacks an educated pool of employees due to slowly developing industrialization.
Answer: C
18) Which of the following would most likely be used in a totalitarian system to promote unconditional support for the official ideology? A) privately owned media outlets B) a parliamentary system C) state control of the education system D) a representative legislative body
Answer: C
20) All of the following countries have a totalitarian political system EXCEPT ________. A) China B) Russia C) South Korea D) Saudi Arabia
Answer: C
28) Which of the following types of political risks often is caused by ethnic conflict or civil disorder and includes those random political developments that adversely affect the operations of all companies in a country? A) systemic political risk B) procedural political risk C) catastrophic political risk D) distributive political risk
Answer: C
37) A(n) ________ law system is based on a systematic and extensive codification of laws and puts political officials in charge of specifying accessible, detailed, and written law that applies to all citizens. A) customary B) common C) civil D) theocratic
Answer: C
40) The pushback against democracy has powered a rise in totalitarianism, a situation that is likely to include which of the following? A) increasing adoption of the principles of the rule of law B) growing demands worldwide for greater fairness and justice in legal proceedings C) increasing adoption of the principles of the rule of man D) suppression of state-control in the direction of legal activities
Answer: C
49) Countries often use local content regulations to determine the proportion of the product that must be made in the local market versus made outside of the local market in order to ________. A) maximize product safety B) ensure a cultural fit C) favor domestic companies D) relieve production pressures on local companies
Answer: C
5) The principle that an individual has the freedom to pursue his or her interests is called ________. A) socialism B) totalitarianism C) individualism D) collectivism
Answer: C
56) Garnet Footwear suffered significant financial losses and had to close its foreign operations. The dissolution process took six months and cost four percent of the firm's estate. Where was Garnet's foreign operations most likely located? A) Ecuador B) France C) Japan D) China
Answer: C
6) Proponents of ________ argue that individual interests are not as important as the welfare of the group. A) pluralism B) capitalism C) collectivism D) individualism
Answer: C
60) Wharton Enterprises, a U.S. firm, manufactures small kitchen appliances. The firm has recently developed an innovative blender design that Wharton executives anticipate being very profitable. Currently, Wharton has production facilities in the U.S. and China. Wharton executives are trying to determine where the new product should be manufactured. Which of the following questions is most relevant to the decision? A) What selection procedures would be best in China? B) Should expatriates or locals manage the Chinese facility? C) How can the firm guard against counterfeiting in China? D) How would China's individualistic system affect the firm?
Answer: C
13) A(n) ________ ideology is the system of ideas that expresses the goals, theories, and aims of how society should work. A) technological B) economic C) legal D) political
Answer: D
15) ________ refers to a political system in which government is organized by and accountable to the people. A) Totalitarianism B) Fascism C) Socialism D) Democracy
Answer: D
17) In a totalitarian political system, ________. A) political power resides with the citizens of the country B) governments direct most economic activity but few social ones C) an individualistic outlook shapes political debate and policy formation D) one agent monopolizes political power
Answer: D
19) Under the ________ form of totalitarianism, the regime confines itself to political control of the state. It does not regulate the economic and social structure of society. A) fascist B) communist C) theocratic D) authoritarian
Answer: D
21) Which of the following is most likely a characteristic of a "partly free" country, such as Guatemala, Kenya, or Malaysia? A) strict religious constraints B) fair election procedures C) respect for civil liberties D) weak rule of law
Answer: D
26) Which of the following is a condition that powered the worldwide spread of democracy from 1970 onward? A) Totalitarian regimes delivered acceptable economic progress to their populations. B) Economic advances caused contentment among the working class and minimized the need to push for democratic reforms. C) Many groups were able to successfully challenge the legitimacy of democratic systems. D) Information and communications technologies broke down the ability of the state to control access to uncensored information, especially that from foreign sources.
Answer: D
27) ________ is the chance that political forces may change a country's business environment in ways that lead investors to lose some or all of the value of their investment or be forced to accept a lower-than-projected rate of return. A) Governmental risk B) Operating risk C) Transaction risk D) Political risk
Answer: D
3) Which of the following countries has an individualistic orientation? A) Venezuela B) Japan C) Egypt D) Canada
Answer: D
30) Select the correct order, going from low to high total impact on an MNE, of the following types of political risk: (1) procedural political risks, (2) systemic political risks, (3) distributive political risks, (4) catastrophic political risks. A) 3, 2, 1, 4 B) 1, 2, 3, 4 C) 2, 3, 4, 1 D) 2, 1, 3, 4
Answer: D
32) Barkely 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 Barkely most likely receive from OPIC? A) financial capital B) cultural training C) legal guidance D) political risk insurance
Answer: D
33) The ________ of a country specifies the rules that regulate behavior, the processes by which laws are enforced, and the procedures used to resolve grievances. A) political system B) political philosophy C) philosophical orientation D) legal system
Answer: D
35) Which of the following is NOT a component of modern legal systems? A) constitutional law B) criminal law C) commercial law D) private law
Answer: D
39) A U.S. firm with manufacturing facilities in Nigeria will most likely be faced with a ________ legal system. A) civil B) common C) customary D) mixed
Answer: D
44) Rockwall Enterprises is planning to expand the firm by establishing operations outside of the U.S. In which of the following countries would Rockwall most likely be able to establish operations most quickly? A) Japan B) Brazil C) Germany D) Australia
Answer: D
54) All of the following are reasons piracy has occurred EXCEPT ________. A) technology allows copyrighted material to be reproduced cheaply without much loss of quality B) some countries offer little protection for certain products C) in some cultures, people see little morally wrong in buying counterfeit goods D) the protection of intellectual property rights varies little from country to country
Answer: D
58) Harmon Clothing has a production facility located in Venezuela. Recently, Harmon has been unable to arrange for overseas loans due to the burdensome regulatory policies of the Venezuelan government. Which type of political risk is Harmon most likely experiencing? A) catastrophic B) distributive C) procedural D) systemic
Answer: D
62) Societies that emphasize collectivism place the interests of individuals over the interests of the state.
Answer: FALSE
66) Democracy and totalitarianism fall on the same end of the political spectrum.
Answer: FALSE
67) The fundamental element of democracy is justice.
Answer: FALSE
70) Totalitarian countries are favored by MNEs because state governments typically favor foreign investors over local companies.
Answer: FALSE
73) According to EIU research, 37% of the world's population live in full democracies.
Answer: FALSE
74) The Washington Consensus promotes democracy, freedom, the rule of man, and human rights.
Answer: FALSE
79) The political system of a country refers to the laws that regulate actions, along with the processes by which those laws are enforced and by which redress for grievances is acquired.
Answer: FALSE
81) A civil law system anchors itself in the wisdom of daily experience or, more intellectually, great spiritual or philosophical traditions.
Answer: FALSE
61) The term collectivism refers to a system that stresses the primacy of societal goals over individual goals.
Answer: TRUE
64) As exemplified in China, the government in a collectivist society is highly connected to and interdependent with business.
Answer: TRUE
68) A democracy grants the voting citizenry the power to alter the laws and structures of government.
Answer: TRUE
80) A common law system is based on tradition, judge-made precedent, and usage in which the courts assign a preeminent position to existing case law to guide dispute resolution.
Answer: TRUE
88) Intellectual property refers to the creative ideas, innovative expertise, or intangible insights that give an individual, company, or country a competitive advantage.
Answer: TRUE
Learning Outcome: Describe how differences in political economy influence economic development 65) A political ideology is the collection of ideas that expresses the goals, theories, and aims that constitute a sociopolitical program.
Answer: TRUE
