BUSMHR 2000 CH 6 (notes) questions
with correct answers
Country (political) risk - correct answer ✔✔Country risk is defined as exposure to potential loss or
adverse effects on company operations and profitability caused by developments in a country's political
and/or legal environments. Sometimes termed political risk, it is one of four major types of international
business risks introduced in Chapter 1. Although the immediate cause of country risk is a political or legal
factor, underlying such factors may be economic, social, or technological developments.
Dimensions of Country Risk - correct answer ✔✔- Harmful or unstable political system
- Laws and regulations unfavorable to foreign firms
- Inadequate or underdeveloped legal system
- Bureaucracy and red tape
- Corruption and other ethical blunders
- Government intervention, protectionism, and barriers to trade and investment
- Mismanagement or failure of the national economy
Political System - correct answer ✔✔a set of formal institutions that constitute a government. It includes
legislative bodies, political parties, lobbying groups, and trade unions. The principal functions of a
political system are to:
Provide protection from external threats.
Ensure stability based on laws.
Govern the allocation of valued resources among the members of a society.
Define how a society's members interact with each other.
Constituents are the people and organizations that support the political system and receive government
resources.
Legal System - correct answer ✔✔is a system for interpreting and enforcing laws. Laws, regulations, and
rules establish norms for conduct. A legal system includes institutions and procedures that:
Ensure order.
, Resolve disputes in civil and commercial activities.
Tax economic output.
Provide protections for private property, including intellectual property and other company assets.
Authoritarianism - correct answer ✔✔Under authoritarianism, the state attempts to regulate most
aspects of public and private behavior. Well-known authoritarian states from the past include China
(1949-1980s) and the Soviet Union (1918-1991). Authoritarianism centralizes power in the government.
The state may seek to control not only all economic and political matters but also the attitudes, values,
and beliefs of the citizenry. Often, the entire population is mobilized in support of the state and a
political or religious ideology. Authoritarian states are generally either theocratic (religion-based) or
secular (non-religion-based). Usually there is a state party led by a dictator, such as Kim Jong-un in North
Korea. Party membership is mandatory for those seeking to advance within the social and economic
hierarchy. Power typically is maintained by means of secret police, propaganda disseminated through
state-controlled mass media, regulation of free discussion and criticism, and/or the use of terror tactics.
Authoritarian states usually do not tolerate activities by individuals or groups such as churches, labor
unions, or political parties that are not directed toward the state's goals.
Socialism - correct answer ✔✔Socialism's fundamental principle is that capital and wealth should be
vested in the state and used primarily as a means of production rather than for profit. Socialism is based
on a collectivist ideology. Collective welfare of people is seen to outweigh the welfare of the individual.
Socialists argue that capitalists receive a disproportionate amount of society's wealth relative to workers.
They believe that in a capitalist society, the pay of workers does not represent the full value of their
labor. They argue government should control the basic means of production, distribution, and
commercial activity. Socialism takes the form of social democracy in much of the world. Social
democracy is an ideology that supports economic and social interventions to promote social justice
through democratic means. Social democracies incorporate both capitalist and socialist practices and
often feature highly developed welfare systems, distributing aid to those in need. Social democracy has
been most successful in Western Europe and also plays a major role in the political systems of several
large countries such as Brazil and India. Social democratic governments frequently intervene in the
private sector and in business activities, as in Italy and Norway. Corporate income tax rates are often
relatively high, as in France and Sweden. A few countries, such as Germany, have experienced net
outflows of FDI as businesses seek to escape extensive regulation.
Democracy - correct answer ✔✔____________ is characterized by two major features:
Private property rights. Individuals can own property and assets and increase one's asset base by
accumulating private wealth. Property includes tangibles, such as land and buildings, as well as
intangibles, such as stocks, contracts, patent rights, and intellectual assets. Democratic governments
devise laws that protect property rights. People and firms can acquire property, use it, buy or sell it, and
bequeath it to whomever they want. These rights are important because they encourage individual
with correct answers
Country (political) risk - correct answer ✔✔Country risk is defined as exposure to potential loss or
adverse effects on company operations and profitability caused by developments in a country's political
and/or legal environments. Sometimes termed political risk, it is one of four major types of international
business risks introduced in Chapter 1. Although the immediate cause of country risk is a political or legal
factor, underlying such factors may be economic, social, or technological developments.
Dimensions of Country Risk - correct answer ✔✔- Harmful or unstable political system
- Laws and regulations unfavorable to foreign firms
- Inadequate or underdeveloped legal system
- Bureaucracy and red tape
- Corruption and other ethical blunders
- Government intervention, protectionism, and barriers to trade and investment
- Mismanagement or failure of the national economy
Political System - correct answer ✔✔a set of formal institutions that constitute a government. It includes
legislative bodies, political parties, lobbying groups, and trade unions. The principal functions of a
political system are to:
Provide protection from external threats.
Ensure stability based on laws.
Govern the allocation of valued resources among the members of a society.
Define how a society's members interact with each other.
Constituents are the people and organizations that support the political system and receive government
resources.
Legal System - correct answer ✔✔is a system for interpreting and enforcing laws. Laws, regulations, and
rules establish norms for conduct. A legal system includes institutions and procedures that:
Ensure order.
, Resolve disputes in civil and commercial activities.
Tax economic output.
Provide protections for private property, including intellectual property and other company assets.
Authoritarianism - correct answer ✔✔Under authoritarianism, the state attempts to regulate most
aspects of public and private behavior. Well-known authoritarian states from the past include China
(1949-1980s) and the Soviet Union (1918-1991). Authoritarianism centralizes power in the government.
The state may seek to control not only all economic and political matters but also the attitudes, values,
and beliefs of the citizenry. Often, the entire population is mobilized in support of the state and a
political or religious ideology. Authoritarian states are generally either theocratic (religion-based) or
secular (non-religion-based). Usually there is a state party led by a dictator, such as Kim Jong-un in North
Korea. Party membership is mandatory for those seeking to advance within the social and economic
hierarchy. Power typically is maintained by means of secret police, propaganda disseminated through
state-controlled mass media, regulation of free discussion and criticism, and/or the use of terror tactics.
Authoritarian states usually do not tolerate activities by individuals or groups such as churches, labor
unions, or political parties that are not directed toward the state's goals.
Socialism - correct answer ✔✔Socialism's fundamental principle is that capital and wealth should be
vested in the state and used primarily as a means of production rather than for profit. Socialism is based
on a collectivist ideology. Collective welfare of people is seen to outweigh the welfare of the individual.
Socialists argue that capitalists receive a disproportionate amount of society's wealth relative to workers.
They believe that in a capitalist society, the pay of workers does not represent the full value of their
labor. They argue government should control the basic means of production, distribution, and
commercial activity. Socialism takes the form of social democracy in much of the world. Social
democracy is an ideology that supports economic and social interventions to promote social justice
through democratic means. Social democracies incorporate both capitalist and socialist practices and
often feature highly developed welfare systems, distributing aid to those in need. Social democracy has
been most successful in Western Europe and also plays a major role in the political systems of several
large countries such as Brazil and India. Social democratic governments frequently intervene in the
private sector and in business activities, as in Italy and Norway. Corporate income tax rates are often
relatively high, as in France and Sweden. A few countries, such as Germany, have experienced net
outflows of FDI as businesses seek to escape extensive regulation.
Democracy - correct answer ✔✔____________ is characterized by two major features:
Private property rights. Individuals can own property and assets and increase one's asset base by
accumulating private wealth. Property includes tangibles, such as land and buildings, as well as
intangibles, such as stocks, contracts, patent rights, and intellectual assets. Democratic governments
devise laws that protect property rights. People and firms can acquire property, use it, buy or sell it, and
bequeath it to whomever they want. These rights are important because they encourage individual
