International Business, 14e (Daniels et al.)
Chapter 3 The Political and Legal Environments Facing Business
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.
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
3) Which of the following countries has an individualistic orientation?
A) Venezuela
B) Japan
C) Egypt
D) Canada
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
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
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
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
8) Which of the following countries has a collectivist orientation?
A) Canada
B) Australia
C) Japan
D) Netherlands
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
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
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
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
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
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.
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
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
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
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
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
20) All of the following countries have a totalitarian political system EXCEPT ________.
A) China
B) Russia
C) South Korea
D) Saudi Arabia
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
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
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.
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
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
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.
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
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
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
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
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.
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
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
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
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
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
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
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
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
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
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”
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
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
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
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
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
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
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
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
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