MAN 3600 Exam 2 FSU KIM Latest
Questions Fully Solved.
COUNTRY RISK (POLITICAL) - Answer Exposure to potential loss or adverse effects on company
operations and profitability caused by developments in a country's political and/or legal
environments.
DIMENSIONS OF COUNTRY RISK - 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 BLUNDERS
• GOVERNMENT INTERVENTION, PROTECTIONISM, AND BARRIERS TO TRADE/INVESTMENT
• MISMANAGEMENT AND FAILURE OF THE ECONOMY
TWO TYPES OF COUNTRY RISK - Answer Systematic
Unsystematic
Systematic Country Risk - Answer affects all industries, all firms in a country.
- Example- the civil war that occurred in the
former Yugoslavia and several African
countries in the 1990s impacted all firms
Unsystematic Country Risk - Answer affects only a subset of firms.
- Example- the Russian government targeted
only Yukos with politically motivated
persecution, despite competitors in the
Russian oil industry—Conoco-Phillips, Exxon
,LEGAL SYSTEM
Political System - Answer A set of formal institutions that constitute a government.
*ex:
Government
• Political parties
• Legislative bodies
• Lobbying groups
• Trade unions
• Other political institutions
LEGAL SYSTEM - Answer *Laws, regulations, and rules that
aim to:
• ensure order in commercial
activities
• resolve disputes
• protect intellectual property
• tax economic output
Three Major Types of Political Systems - Answer 1. Totalitarianism
2. Socialism
3. Democracy
Totalitarianism - Answer -Government controls all economic and political matters.
-Either theocratic (religion-based) or secular.
-A state party is led by a dictator.
-Membership is mandatory for those wanting to advance.
-Power is sustained via secret police, propaganda, and regulation of free discussion and
criticism.
-Today: Some countries in the Middle East and Africa; Cuba, North Korea.
, -Government's role is to control the basic means of production, distribution, and commercial
activity.
-Government intervention in the private sector.
-Corporate income tax rates are higher.
Democracy - Answer -Economic activity occurs freely, as per market forces
--Limited government: The government performs only essential functions that serve all citizens,
such as national defense, maintaining law and order, foreign relations, and providing basic
infrastructure.
--Private property rights: The ability to own property and assets and to increase one's asset base
by accumulating private wealth. Property includes land, buildings, stocks, contracts, patents.
-Encourages initiative, ambition, and innovation.
Relationship between economic and political freedom? - Answer THEY ARE DIRECTLY
CORRELATED.
As political freedom rises; economic freedom rises. (vice versa)
Democracy and openness? - Answer Democracy is associated with
"openness", the lack of regulation and
barriers to the entry of firms in foreign
markets.
• Openness is associated with:
Successful market entry.
Increased market demand.
Competition for quality, which
improves overall product quality.
Increased competition, leading
to efficiencies and lower prices.
Questions Fully Solved.
COUNTRY RISK (POLITICAL) - Answer Exposure to potential loss or adverse effects on company
operations and profitability caused by developments in a country's political and/or legal
environments.
DIMENSIONS OF COUNTRY RISK - 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 BLUNDERS
• GOVERNMENT INTERVENTION, PROTECTIONISM, AND BARRIERS TO TRADE/INVESTMENT
• MISMANAGEMENT AND FAILURE OF THE ECONOMY
TWO TYPES OF COUNTRY RISK - Answer Systematic
Unsystematic
Systematic Country Risk - Answer affects all industries, all firms in a country.
- Example- the civil war that occurred in the
former Yugoslavia and several African
countries in the 1990s impacted all firms
Unsystematic Country Risk - Answer affects only a subset of firms.
- Example- the Russian government targeted
only Yukos with politically motivated
persecution, despite competitors in the
Russian oil industry—Conoco-Phillips, Exxon
,LEGAL SYSTEM
Political System - Answer A set of formal institutions that constitute a government.
*ex:
Government
• Political parties
• Legislative bodies
• Lobbying groups
• Trade unions
• Other political institutions
LEGAL SYSTEM - Answer *Laws, regulations, and rules that
aim to:
• ensure order in commercial
activities
• resolve disputes
• protect intellectual property
• tax economic output
Three Major Types of Political Systems - Answer 1. Totalitarianism
2. Socialism
3. Democracy
Totalitarianism - Answer -Government controls all economic and political matters.
-Either theocratic (religion-based) or secular.
-A state party is led by a dictator.
-Membership is mandatory for those wanting to advance.
-Power is sustained via secret police, propaganda, and regulation of free discussion and
criticism.
-Today: Some countries in the Middle East and Africa; Cuba, North Korea.
, -Government's role is to control the basic means of production, distribution, and commercial
activity.
-Government intervention in the private sector.
-Corporate income tax rates are higher.
Democracy - Answer -Economic activity occurs freely, as per market forces
--Limited government: The government performs only essential functions that serve all citizens,
such as national defense, maintaining law and order, foreign relations, and providing basic
infrastructure.
--Private property rights: The ability to own property and assets and to increase one's asset base
by accumulating private wealth. Property includes land, buildings, stocks, contracts, patents.
-Encourages initiative, ambition, and innovation.
Relationship between economic and political freedom? - Answer THEY ARE DIRECTLY
CORRELATED.
As political freedom rises; economic freedom rises. (vice versa)
Democracy and openness? - Answer Democracy is associated with
"openness", the lack of regulation and
barriers to the entry of firms in foreign
markets.
• Openness is associated with:
Successful market entry.
Increased market demand.
Competition for quality, which
improves overall product quality.
Increased competition, leading
to efficiencies and lower prices.
