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Chapter 6: The Legal and Political Environment of Global Business
Chapter 6: The Legal and Political Environment of Global Business
TRUE/FALSE
1. Totalitarian government refers to a form of government in which total (all) citizenry have
the right to vote.
2. The openness of democratic countries like Finland, and the protections such countries tend
to generally provide for property rights and freedom of expression, usually make those
countries more hospitable places to conduct global business than countries with totalitarian
or semi-totalitarian political regimes.
4. Under Communist economic ideology, collectivistic rights give way in the extreme to
individual rights.
5. Very little role for government exists in a purely capitalistic or “free market” economic
system.
7. Currency devaluation and conversion restrictions are two of the many economic risks
companies take when engaging in international business.
8. Fortunately for global businesses, economic risks are independent of political risks.
10. Rankings of countries throughout the world by potential political risks typically place
Scandinavian and European countries such as Norway, Sweden, Switzerland, Luxembourg
and Denmark near the top of the list, meaning that companies engaging in business in these
countries face the least number of potential political risks.
11. There are essentially two kinds of business corruption: private corruption and public
corruption.
13. Tax law is the body of law governing legally enforceable agreements between parties to
engage in economic exchange.
14. Patent rights generally remain enforcable for 5-20 years, depending on the invention and the
country.
MULTIPLE CHOICE
1. _____ is Greek for “rule by the people”; it is a form of government in which all citizens
have the right to vote.
a. Democracy
b. Totalitarianism
c. Dictator
d. Egalitarianism
e. Communism
ANS: A PTS: 1 DIF: Difficulty: Easy
REF: p. 142 OBJ: LO: 06-01 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
3. Most, if not all, democracies today are what are known as _____ democracies.
a. athenian
b. totalitarianism
c. representative
d. egalitarian
e. communism
ANS: C PTS: 1 DIF: Difficulty: Easy
REF: p. 142 OBJ: LO: 06-01 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
7. _____ involves an economic ideology in which the government or state plays a strong role
in the economy and may own stakes in certain businesses.
a. Totalitarianism
b. Democracy
c. Communism
d. Capitalism
e. Socialism
ANS: E PTS: 1 DIF: Difficulty: Easy
REF: p. 145 OBJ: LO: 06-02 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
8. _____ refers to an economic system where businesses are privately owned with a strong
individualistic profit orientation.
a. Totalitarianism
b. Democracy
c. Communism
d. Capitalism
e. Socialism
ANS: D PTS: 1 DIF: Difficulty: Easy
REF: p. 145 OBJ: LO: 06-02 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
11. A country that has particularly militant labor unions known for frequent unplanned or
wildcat strikes, or perhaps a country known for holding corporate executives hostage until
their demands are met, are examples of _____ risk.
a. political
b. environmental
c. individual
d. economic
e. financial
ANS: D PTS: 1 DIF: Difficulty: Challenging
REF: p. 146 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Application
12. _____ risks are the risks that political forces or problems in a given country will have a
meaningful negative impact upon the conduct of business in that country.
a. Political
b. Environmental
c. Individual
d. Economic
e. Financial
ANS: A PTS: 1 DIF: Difficulty: Easy
REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
13. A country’s potential nationalization of companies in the oil industry would represent a(n)
_____ risk.
a. marketing
b. environmental
c. individual
d. macropolitical
e. micropolitical
ANS: E PTS: 1 DIF: Difficulty: Challenging
REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Application
14. The potential overthrow of a democratically elected presidential regime by a military junta
is likely a(n) _____ risk.
a. marketing
b. environmental
c. individual
d. macropolitical
e. micropolitical
ANS: D PTS: 1 DIF: Difficulty: Challenging
REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Application
15. Which of the following laws provides for (after a certain deductible) U.S. government
insurance coverage for the risk of a U.S. business or property being attacked by a “foreign
person or foreign interest?”
a. Foreign Corrupt Practices Act
b. Overseas Private Investment Act
c. Terrorism Risk Insurance Act
d. Antitrust Act
e. United We Stand Act
ANS: C PTS: 1 DIF: Difficulty: Moderate
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
16. Which of the following is a U.S. government agency that sells political risk insurance to
U.S. businesses operating in countries with which the U.S. has a bilateral investment treaty?
a. Foreign Corrupt Corporation
b. Overseas Private Investment Corporation
c. Terrorism Risk Corporation
d. Antitrust Corporation
e. United Corporation
ANS: B PTS: 1 DIF: Difficulty: Moderate
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
17. A situation where businesses are able to illegally alter relevant private and/or public decision
making by way of bribes, kickbacks, blackmail, extortion, and related activities is known as
_____.
a. corruption
b. an ethical violation
c. dishonesty
d. treachery
e. deceitfulness
ANS: A PTS: 1 DIF: Difficulty: Easy
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge
18. _____ corruption is business corruption involving other private businesses, individuals, or
groups.
a. Public
b. Private
c. Open
d. Closed
e. External
ANS: B PTS: 1 DIF: Difficulty: Easy
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge
19. _____ involves unlawful arts or violence threatening the physical safety of others.
a. Persecuting
b. Oppressing
c. Intimidating
d. Bullying
e. Terrorism
ANS: E PTS: 1 DIF: Difficulty: Easy
REF: p. 147 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
20. Paying “protection money” or giving sales kickbacks to an organized crime group would
represent at example of _____ corruption.
a. public
b. private
c. open
d. closed
e. external
ANS: B PTS: 1 DIF: Difficulty: Challenging
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Application
21. A supplier paying a bribe to an officer of a company that purchases its products to help
“facilitate” the purchase of said products is an example of _____ corruption.
a. public
b. private
c. open
d. closed
e. external
ANS: B PTS: 1 DIF: Difficulty: Challenging
REF: p. 148 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Application
22. A 2010 survey asked individuals whether they or someone in their household had paid a
bribe in the past 12 months. The survey found a _____ percent bribery rate in the United
States.
a. 1
b. 5
c. 13
d. 22
e. 33
ANS: B PTS: 1 DIF: Difficulty: Challenging
REF: p. 149 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge
23. According to the text regarding a study of corporate bribery in developed countries
conducted by Transparency International, _____ had the most corporate bribery.
a. Russia
b. Belgium
c. Canada
d. Brazil
e. Taiwan
ANS: A PTS: 1 DIF: Difficulty: Moderate
REF: p. 150 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Evaluation
24. The practice of making illegal payments to government officials or engaging in blackmail,
extortion, or other related activities to obtain government contracts or governmental
approval for business activities is called _____ corruption.
a. public
b. private
c. open
d. closed
e. external
ANS: A PTS: 1 DIF: Difficulty: Easy
REF: p. 149 OBJ: LO: 06-03 NAT: BUSPROG: Ethics
STA: DISC: Ethical Responsibilities KEY: Bloom's: Knowledge
25. The _____ is a U.S. law that prohibits U.S. companies from bribing or otherwise corrupting
foreign government officials to win foreign government contracts or obtain other foreign
government assistance for their businesses.
a. Foreign Corrupt Practices Act
b. Overseas Private Investment Act
c. Terrorism Risk Insurance Act
d. Antitrust Act
e. United We Stand Act
ANS: A PTS: 1 DIF: Difficulty: Moderate
REF: p. 149 OBJ: LO: 06-03 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
26. A legal system based on a comprehensive listing of legal rules in sets of written codes of
law is known as a _____ law legal system.
a. civil
b. common
c. theocratic
d. representative
e. family
ANS: A PTS: 1 DIF: Difficulty: Easy
REF: p. 151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
27. A legal system where legislative bodies generally enact specific legal rules giving judges or
courts considerable authority in interpreting these rules based on precedent and other factors
is called a _____ law legal system.
a. civil
b. common
c. theocratic
d. representative
e. family
ANS: B PTS: 1 DIF: Difficulty: Easy
REF: p. 151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
28. Of the following statements about common law legal systems, which is NOT true?
a. They originated in Asia in 1250.
b. A key advantage of this approach is that judges have a fair amount of flexibility to
change their interpretations of the law based on changing societal developments.
c. One downside of the common law approach is that it gives much power to the
courts and judges.
d. It is a legal system where legislative bodies generally enact specific legal rules
giving judges or courts considerable authority in interpreting these rules based on
precedent and other factors.
e. Some say that in common law countries it is often appointed judges who “make the
law” rather than elected legislators.
ANS: A PTS: 1 DIF: Difficulty: Moderate
REF: p. 151 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Analysis
29. _____ establishes which violations of a nation’s laws are crimes punishable by possible
incarceration.
a. Democratic
b. Common
c. Theocratic
d. Representative
e. Criminal
ANS: E PTS: 1 DIF: Difficulty: Easy
REF: p. 152 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
30. A party wishing to sell a given piece of commercial real estate to another party would enter
into a real estate agreement with the other party. This is an example of which type of law?
a. Tax
b. Common
c. Contract
d. Theocratic
e. Criminal
ANS: C PTS: 1 DIF: Difficulty: Challenging
REF: p. 153 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
31. Laws to promote “fair competition” among businesses are known as _____ laws.
a. tax
b. common
c. contract
d. theocratic
e. antitrust
ANS: E PTS: 1 DIF: Difficulty: Easy
REF: p. 154 OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Environmental Influence KEY: Bloom's: Knowledge
32. “Coca-Cola,” the Nike “swoosh” logo, and McDonald’s “golden arches” are examples of
_____.
a. intellectual property
b. patents
c. trademarks
d. generalized trademarks
e. contracts
ANS: C PTS: 1 DIF: Difficulty: Challenging
REF: p. 157 OBJ: LO: 06-05 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Application
33. The words “aspirin,” “escalator,” and “zipper” are examples of _____.
a. intellectual property
b. patents
c. trademarks
d. generalized trademarks
e. contracts
ANS: D PTS: 1 DIF: Difficulty: Challenging
REF: p. 157 OBJ: LO: 06-05 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Application
COMPLETION
1. ________ ; Greek for “rule by the people”; is a form of government in which all citizens
have the right to vote.
ANS: Democracy
2. ______is a pure form of democracy, in which all adult citizens vote directly on matters
affecting the community.
3. A form of government in which citizens vote to elect given individuals to serve as their
representatives for a certain period of time is referred to as a(n) _________.
5. _______ is an economic ideology where by the government owns and controls all major
factors of production, and is philosophically an economically classless society.
ANS: Communism
6. ________ is an economic ideology in which the government plays a strong role in the
economy and may own stakes in certain businesses.
ANS: Socialism
7. An economic ideology where businesses are privately owned, strong individual incentives
exist, and the government plays very little role in the economy is known as ________.
ANS: capitalism
8. _______ risks are those that financial problems or mismanagement in a given country will
have a meaningful negative impact upon the conduct of business in that country
ANS: Economic
9. The risks that government insability or problems in a given country will have a meaningful
negative impact upon the conduct of business in that country make up the ______ risks.
ANS: political
10. A political risk that only affects a certain industry or set of firms in a given country is called
a ______ risk.
ANS: micropolitical
11. A political risk that essentially affects all businesses in a given country is referred to as a
_______ risk.
ANS: macropolitical
12. _______ is defined as unlawful acts or violence threatening the physical safety of others.
ANS: Terrorism
13. The ________ is a United States law that after a certain deductible provides U.S. businesses
government insurance coverage for the risk of terrorism.
14. The _______ is a U.S. government agency that sells political risk insurance to U.S.
businesses operating in countries with which the U.S. has a bilateral investment treaty.
15. ______ is defined as a situation where businesses are able to illegally alter relevant private
and/or public decision making by way of bribes, kickbacks, blackmail, extortion and related
activities.
ANS: Corruption
16. Business corruption involving other private businesses, individuals, or groups is called
_____.
17. The practice of making illegal payments to government officials or engaging in blackmail,
extortion or other related activities in order to obtain government contracts or governmental
approval for business activities is known as ______.
19. _______ legal system is based on a comprehensive listing of legal rules in sets of written
codes of law.
20. _______ legal system is where legislative bodies generally enact less specific legal rules
giving judges or courts considerable authority in interpreting these rules based on precedent
and other factors
21. A legal system based on a religious document and religious teachings is referred to as a
_______ legal system.
22. ______ law that establishes which violations of a nation’s laws are crimes punishable by
possible incarceration.
ANS: Criminal
PTS: 1 DIF: Difficulty: Easy REF: p. 152
OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
23. _________ law is the body of law governing legally enforceable agreements between parties
to engage in economic exchange.
ANS: Contract
24. The body of law dealing with governmental levying of taxes on individuals and corporations
is referred to as ______ law.
ANS: tax
25. Countries with little or no tax transparency are know as _______ countries.
26. ______ laws are enacted to promote “fair competition” among businesses.
ANS: Antitrust
27. The practice of companies acting in a manner which secretly thwarts competition amongst
themselves is known as _______.
ANS: collusion
PTS: 1 DIF: Difficulty: Moderate REF: p. 154
OBJ: LO: 06-04 NAT: BUSPROG: Diversity
STA: DISC: Legal Responsibilities KEY: Bloom's: Knowledge
28. A situation where there is only a single seller of a product in an industry and there are very
high barriers to enter this industry is called a _______.
ANS: monopoly
29. The law which establishes the standards of product safety to which the manufacturers and
sellers of products are to be held is called _________ law.
30. _______ or “buyer beware”; involves placing the burden of determining product safety on
consumers.
31. _______ or “Seller beware”; involves placing on manufacturers or sellers of products the
burden of making sure products are safe or at least clearly and explicitly warning consumers
about the potential safety risks of said product.
32. _________ law governs how disputes arising in the conduct of global business are settled.
ANS: Dispute settlement
33. _________ involves bringing a dispute to a publicly or governmentally run court of law for
resolution.
ANS: Litigation
34. An alternative dispute resolution process whereby the parties designate a neutral private
person or group of persons to hear and decide the case is referred to as _______.
ANS: arbitration
35. _________ is property that is the creative product of an individual’s intellectual, rather than
physical, activity.
37. A _______is the right granted to the inventor of a product or process that excludes others
from selling, making or using the invention for a certain period of time.
ANS: patent
38. A ________ is a distinctive phrase, name, word, picture, symbol or design, or combination
of these, that identifies a given business’ service or product, and is owned by said business.
ANS: trademark
39. A __________ trademark is a trademark that has become so well known or colloquial that it
describes a general class of product or service, rather than a specific product or service as
intended by the trademark’s owner.
ANS: genericized
40. A _______ is the exclusive legal right that authors, playwrights, publishers, artists,
composers, performers, photographers, and other creators have to publish and disseminate
their work as they see fit.
ANS: copyright
ESSAY
ANS:
Students responses will vary.
ANS:
Students responses will vary.
3. Describe the economic and political risks faced by companies doing business in global
arena.
ANS:
Students responses will vary.
4. Differentiate between public and private corruption and explain how they affect global
businesses.
ANS:
Students responses will vary.
ANS:
Students responses will vary.
ANS:
Students responses will vary.
7. What are antitrust laws and how do these laws affect business at a global level?
ANS:
Students responses will vary.
8. Describe how patents, trademarks, and copyrights help protect intellectual properties in
today;s global business.
ANS:
Students responses will vary.
CASE
Brittany and Brandi Britton recently took over the family business, Britton Manufacturing,
after their father and company founder retired. The company manufactures the finest of bed
linens and has grown to be recognized as sixth in the industry for sales. Britton
Manufacturing’s products have been produced and sold strictly within the continental
United States until this point in time. Now, the new owners desire to change things and plan
to begin exporting the company’s products to England, France, Norway, Greece, Egypt,
China, and Germany.
Both Brittany and Brandi have graduated college with degrees in business and are looking
forward to putting their educations to good use in growing the company. They realize there
is much to learn and are looking forward to the challenges facing their international
endeavor. They have projected an increase in sales by 15 million dollars in the first year as
well as employment opportunities for an additional 500 workers in the U.S.
1. One of the international markets in which Britton Manufacturing plans to sell its products is
China. All but which one of the following identifies a significant challenge facing the
company in this international marketplace?
a. The product laws of China are very similar to those found within the United
States.
b. China is considered a communist country in which the government owns or
controls most of the factors of production.
c. There is the possibility of the Chinese government confiscating the assets (the
products) of Britton Manufacturing.
d. For the most part, the government of China continues to maintain control of the
unions within China.
e. The market of China provides enormous opportunity for foreign companies
because it has been emerging as one of the most economically powerful nations
in the world in recent years.
ANS:
a
ANS:
c
3. Britton Manufacturing faces many laws and regulations that will impact the company while
it conducts business on foreign soil. Which one of the following is least likely to be of
concern to Britton in the international marketplace?
a. Contract Law
b. U. S. Labor Laws
c. Tax Law
d. Product Safety Laws
e. Dispute Settlement Law
ANS:
b
The Rochester Corporation considers it is a veteran when it comes to dealing with foreign
governments and nations. The company maintains strict guidelines for employees and will
only hire those who have expatriate experience of at least three years. The owners of
Rochester attribute the company’s continued success to the experience and knowledge of its
employees.
4. If the Rochester Corporation experienced unresolved legal problems with one of its
customers located in a foreign country, all of the following except which one would be a
potential way to remedy the problem?
a. Engage in arbitration
b. Have the court system use dispute settlement law to reach a resolution to the
problem
c. Use the services of a mediator or an arbitrator
d. Bring about litigation in the reigning court of law
e. Obtain an executive order from the U.S. Attorney General’s office
ANS:
e
PTS: 1 DIF: Difficulty: Moderate REF: p. 150-156
OBJ: LO: 06-04 NAT: BUSPROG: Reflective Thinking
STA: DISC: Legal Responsibilities KEY: Bloom's: Analysis
5. In dealing with such a varied number of customers from virtually all major points in the
world, the Rochester Corporation is subjected to many risks. Which one of the following
would not be considered an economic risk Rochester potentially faces in its global dealings?
a. Restriction in the transfer of foreign currency
b. The devaluation of foreign currency
c. Government confiscation of company assets
d. Currency conversion restrictions
e. Potential for hyper-inflation to occur
ANS:
c
6. The Rochester Corporation has three products that were created by its employees. These
products have received patents from both the United States and twenty foreign nations. All
three products are currently exported to all of the company’s customers. Which one of the
following does not reflect guidelines or rules governing these patents?
a. The inventor has exclusive rights to the product for a certain period of time
b. Patent rights remain enforceable for 5-20 years depending upon the invention
and the country involved
c. Patents have an expiration date set some time in the future depending on the
invention
d. Modifications to the product by others are allowed after one year and with
government consent
e. Patents offer inventors limited legal monopoly rights
ANS:
d