Chapter 3 – Legal, Technological, and Political Forces

THE LEGAL ENVIRONMENT

1. Despite some slight variations, legal systems are basically the same the world over.

2. Common law is the most common form of legal system.

3. Civil law has its origins in biblical times and used to be the foundation of the legal system in France.

4. Home country laws are only relevant for the domestic operations of a multinational company.

5. Common law is the foundation of the legal systems in the United Kingdom and its former colonies, including the United States,
Canada, and Australia.

6. A legal system based on the detailed listing or codification of what is permissible and what is not is a civil law system.

7. The legal system in communist countries and in dictatorships is often described as statutory law.

8. The legal system in countries such as Saudi Arabia and Iran can be described as religious law.

9. Countries may attempt to regulate business activities that are conducted outside their borders, a practice known as
extraterritoriality.

10. In the eyes of the U.S. government, the Helms-Burton Act is simply designed to ensure that foreign companies do
not profit from Cuban property that was stolen from U.S. owners.

11. When the host government nationalizes a company’s property and compensates the private owners for their losses,
the transfer is called confiscation.

12. The conversion of state-owned property to privately owned property is called privatization.

13. Privatization, which gained momentum in the 1980s, stems from two primary forces: political ideology and
economic pressure.

14. Countries can constrain foreign MNCs by imposing restrictions on their ability to repatriate profits earned in the
host country.

15. Forum shopping is when a party involved in an international dispute can seek a court system most favorable to its
interest if there is no provision in the contract as to which country's law applies.

16. Expropriation is the process by which both parties to the conflict agree to submit their cases to a private individual
or body whose decision they will honor.

THE TECHNOLOGICAL ENVIONMENT

17. Since the cold war is over, the exportation of dual-use products is no longer an issue in international trade.

18. According to the Business Software Alliance, piracy of computer software will cost its members $12 billion in
revenues in 1999.
THE POLITICAL ENVIRONMENT

19. Extraterritoriality is the attempt by countries to regulate business activities conducted outside their borders.

20. Expropriation is when a host government compensates a company for nationalizing its assets.

21. Enforcement of intellectual property rights is of more concern to developed countries.

22. The possibility that a civil war may break out in a country is an example of a macropolitical risk.

23. The welfare levels in a country are a major determinant of political risk.

24. Economic risks are defined as any changes in the political environment that may adversely affect the value of the
firm’s business activities.

25. The type of risk in which the government interferes with the firm’s ability to shift funds into and out of a country is
called transfer risk.

26. According to the text, a macropolitical risk affects all firms in a country.

27. A macropolitical risk affects only a specific firm or firms within a specific industry.

28. The greater and longer-lived a firm’s investment, the more narrow its risk assessment should be.

29. A centrally planned economy is one in which government planners determine prices and production levels for
individual firms.

30. A primary source of political risk in most of the centrally planned economies is the instability of their political
systems.

Multiple Choice

THE LEGAL ENVIRONMENT

31. ______________ is the foundation of the legal systems in the United Kingdom and its former colonies, including the
United States, Canada, and Australia.
a. Common law
b. Civil law
c. Bureaucratic law
d. Religious law
e. Statutory law

32. A law based on the cumulation of judges' decisions over centuries is ______________.
a. religious law
b. common law
c. civil law
d. bureaucratic law
e. statutory law

33. Which of the following forms of legal systems creates legal precedents, which other judges use to decide similar
cases?
a. Civil law
b. Common law
c. Bureaucratic law
d. Religious law
e. Statutory law

34. Many business transactions between firms and the British government are shielded from public scrutiny by that
country’s ______________.
a. Foreign Corrupt Practices Act
b. Official Secrets Act
c. Helms-Burton Act
d. Landlam Act
e. Freedom of Information Act
35. More information about transactions between firms and the U.S. federal government is publicly available because
of that country’s _____________.
a. Foreign Corrupt Practices Act
b. Official Secrets Act
c. Freedom of Information Act
d. Helms-Burton Act
e. Lundum Act

36. The most common form of legal system in the world is ______________.
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

37. A legal system based on the detailed listing or codification of what is permissible and what is not is a
______________ system.
a. statutory law
b. bureaucratic law
c. religious law
d. civil law
e. common law

38. The ______________ system originated in biblical times with the Romans, who spread it throughout the Western
world.
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

39. In a _____________ system, the judge serves as a neutral referee, ruling on various motions by the opposing parties’
lawyers.
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

40. In which of the following types of legal systems does the judge take on many of the tasks of the lawyers,
determining, for example, the scope of evidence to be collected and presented to the court?
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

41. A country that applies religious law to civil and criminal conduct is called a _____________.
a. theocracy
b. democracy
c. bureaucracy
d. dictatorship

42. In Iran, ______________ denounces charging interest on loans as an unfair exploitation of the poor.
a. the Buddha
b. the Isiah
c. the Koran
d. the Kiretsu
e. the Chaebol

43. The legal system in communist countries and in dictatorships is often described as _____________.
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

44. Contracts can be made or broken at the whim of those in power is a characteristic of which of the following legal
systems?
a. statutory law
b. civil law
c. bureaucratic law
d. religious law
e. common law

45. A legal system that has very little regard for the law of the land but is at the mercy of dictators is commonly
referred to as ______________.
a. bureaucratic law
b. statutory law
c. civil law
d. common law
e. religious law

46. The legal system in countries such as Saudi Arabia and Iran can be described as ______________.
a. religious law
b. statutory law
c. common law
d. civil law
e. bureaucratic law

47. A country may attempt to induce a second country to change an undesirable policy by imposing ______________.
a. subsidies
b. sanctions
c. bartering
d. counterpurchases

48. A comprehensive sanction against all commerce with a given country is called a(n) _____________.
a. subsidy
b. barter
c. counterpurchase
d. embargo
e. quota

49. All of the following are reasons why international businesspeople should rely on local lawyers in each country in
which they operate, EXCEPT:
a. they are less expensive.
b. they have a better understanding of the local legal procedures.
c. they understand local laws on legal liabilities.
d. legal systems and practices are different among countries.
e. they understand differences in due process.

50. Which of the following statements is not ?

a. Home country laws do not affect foreign operations.
b. Home country laws affect how the workforce is managed.
c. Home country laws affect the foreign operations of a domestic company.
d. Home country laws affect the development of technology.
e. Home country laws affect domestic operations.