Question 1

Intelligentia is attempting to do business in Bazania, but the Bazanian government purposely delays granting Intelligentia the necessary licenses and permissions required to conduct business in the country.Which of the following best describes this situation?

Accepted Answer

Creeping expropriation refers to the gradual but intentional taking over of a foreign company's assets by a government through various means, including delaying or denying necessary licenses and permissions. This is the most accurate description of the situation Intelligentia is facing in Bazania. Nationalization refers to the government taking over ownership of a foreign company's assets, which is not happening in this scenario. Barriers to repatriation refer to limitations on transferring profits or assets out of a country, which is also not mentioned in the scenario. Confiscation refers to the sudden and complete seizure of assets, which is not the case here either.

Question 2

Micropolitical risk events are those that affect ________.

Accepted Answer

Micropolitical risk events are specific to one industry or company or a few companies. These events can include changes in regulations, political instability, or labor disputes that directly impact the operations of a particular company or industry. They are not necessarily regional or international in scope and can be limited to a single location or country.

Question 3

Which of the following strategies is a firm most likely to use, if it initiates a joint venture with a local company in a foreign country, as a way of adapting to risk?

Accepted Answer

Equity sharing is a strategy that involves sharing ownership of a joint venture with a local company in a foreign country. This strategy can help to reduce the risk of the venture by spreading the financial burden and risk between the two companies.

Question 4

Which of the following is an example of a macropolitical risk event?

Accepted Answer

A terrorist attack can be considered a macropolitical risk event as it can have significant impacts on a country's political, economic, and social stability. It can also affect the operations and investments of companies within the country. Forced sale of equity to host-country nationals, expropriation without compensation, and barriers to repatriation of funds are examples of micro-political risks as they primarily affect individual companies and their investments.

Question 5

In addition to avoidance and adaptation, two other means of risk reduction available to managers are ________ and ________.

Accepted Answer

Dependency refers to reducing risk by diversifying the sources of resources, suppliers or markets, thus reducing dependence on any one source. Hedging involves reducing risk by offsetting one's exposure to specific risks through the use of financial instruments such as insurance, futures contracts, or options.

Question 6

Recently, the level of ________ in Europe, for example, was a great concern around the world, in particular regarding concerns in the eurozone brought about by debt problems in Greece.

Accepted Answer

The sentence refers to debt problems in Greece, indicating an economic risk event.

Question 7

Zagreb Inc., a transnational energy company, negotiates a multimillion-dollar contract with the government to provide electricity to Pilladia.The government is voted out of power shortly after.The new government cancels all contracts it has with all oil companies but not contracts with firms in other industries.This is an example of ________.

Accepted Answer

This scenario exemplifies micropolitical risk, which is the risk that a specific decision made by a host government will negatively impact a foreign business's operations. In this case, the cancellation of the contracts with oil companies by the new government is a result of a specific decision and not a general policy of protectionism or confiscation. Barriers to repatriation refer to restrictions on the transfer of profits or capital back to the home country, which are not present in this scenario.

Question 8

If a foreign-based firm borrows money from a host country bank as a hedge against being forced out of operation without adequate compensation, the firm is managing political risk with ________.

Accepted Answer

The foreign-based firm is managing political risk by using local debt financing, which means borrowing money from a host country bank. This can be seen as a hedge against being forced out of operation without adequate compensation, as the firm would have access to funds to help mitigate the losses incurred by political risks.

Question 9

Which of the following means of adaptation to political risk requires that a firm actively involve nationals in the management of its subsidiary?

Accepted Answer

Participative management involves actively involving nationals in the management of the subsidiary, thereby reducing political risk. Equity sharing involves sharing ownership and control of the subsidiary with nationals, localization of the operation involves adapting to local customs and culture, and development assistance involves providing assistance to the host country to develop infrastructure and skills. While these can also help reduce political risk, they do not necessarily require active involvement of nationals in the management of the subsidiary.

Question 10

Which of the following means of political risk reduction is best suited for firms that decide a high-risk environment is worth the potential returns?

Accepted Answer

Adaptation involves adjusting a firm's business strategies and practices to align with the local environment, which is a proactive approach for firms willing to operate in high-risk areas to mitigate potential risks while seeking returns.

Question 11

Which of the following is a form of protectionist policies?

Accepted Answer

Quotas are a form of protectionist policies that restrict the amount of imported goods allowed into a country in order to protect domestic industries. Patents, on the other hand, are a form of intellectual property protection and do not necessarily directly affect trade. Foreign direct investment and bribes are not necessarily protectionist policies, as foreign direct investment can result in increased trade and economic growth, while bribes are generally considered illegal and unethical.

Question 12

________ includes the initiation of joint ventures with nationals (individuals or those in firms, labor unions, or government)to reduce political risks.

Accepted Answer

Equity sharing involves partnering with nationals to reduce political risks. By sharing ownership and control of a business with local partners, foreign firms can gain access to valuable local knowledge, networks, and resources, as well as mitigate political risks associated with operating in an unfamiliar environment. Joint ventures, in which two or more parties share ownership and management of a business, are a common form of equity sharing that can help foreign firms navigate complex political and cultural landscapes while also benefiting from local market knowledge and connections.

Question 13

The government of Jonovia seizes all assets of Refresh, a world-famous, soft-drink brand in Jonovia, and offers compensation to the company.This action by the government of Jonovia is an example of ________.

Accepted Answer

Expropriation refers to the action taken by a government to seize privately-owned assets, typically without compensation or with minimal compensation. Therefore, the government of Jonovia seizing all assets of Refresh and offering compensation is an example of expropriation.

Question 14

For autonomous international subsidiaries, most of the impact from political risks will be in which of the following areas?

Accepted Answer

Autonomous international subsidiaries are often most affected by political risks in the area of ownership and control, as changes in political climate can lead to expropriation, nationalization, or changes in foreign ownership laws.

Question 15

________ poses a severe and random political risk to company personnel and assets, and interrupts the conduct of business.

Accepted Answer

Terrorism is a severe and random political risk that can harm company personnel and damage assets, causing disruptions to business operations. Acts of terrorism may include violence, bombings, kidnapping, cyber-attacks, and other forms of aggression aimed at promoting a political agenda, instilling fear or causing chaos. As such, companies need to have effective risk management plans in place to address the threat of terrorism and protect their employees and assets.

Question 16

Which of the following is a form of hedging?

Accepted Answer

Local debt financing is a form of hedging because it allows the company to borrow money in the local currency, reducing the risk of fluctuating exchange rates. Expatriate control in key positions, development assistance, and localization of the operation are not forms of hedging.

Question 17

Political risk insurance and local debt financing are both forms of ________.

Accepted Answer

Political risk insurance and local debt financing are both forms of hedging as they help to mitigate the risk associated with doing business in a foreign country. Political risk insurance protects against losses due to political instability, whereas local debt financing allows companies to access funding in local currency, reducing exposure to currency fluctuations.

Question 18

A country's ability or intention to meet its financial obligations determines its ________.

Accepted Answer

A country's ability or intention to meet its financial obligations falls under the category of economic risk as it pertains to the risks associated with the economic and financial factors that may affect a country's ability to repay debts, maintain economic stability, or attract foreign investment.

Question 19

For global corporations, the primary impact of political risks is likely to be on the firm's ________.

Accepted Answer

Political risks can impact the firm's transfers of money or products, such as import/export restrictions, changes in currency exchange rates, and nationalization of assets. Political risks may also affect ownership and control, but this is a less immediate impact compared to the disruption in business operations caused by the transfer of money or products. Political risks may also influence managerial strategy and policy-making, but this depends on the specific nature of the political risks and the company's objectives, values, and resources. Hiring and recruiting policies are not typically affected by political risks, unless there is a significant change in the labor market or immigration policies.

Question 20

Expropriation of corporate assets without prompt and adequate compensation is an example of ________.

Accepted Answer

Expropriation of corporate assets without prompt and adequate compensation is a political risk because it involves government actions that can affect the financial success of a corporation. It is not an economic risk since it is not related to market fluctuations, and it is not a legal or cultural risk as it is specific to political actions.

Quiz 1: Assessing the Environment: Political, Economic, Legal, Technological