CHAPTER 4
POLITICAL ENVIRONMENT
MULTIPLE CHOICE
1. This theory states that advanced countries extract surplus value from their less-developed
counterparts, thus leaving them undeveloped.
a) multiplicity of politics
c) capitalism
b) absolutist system
d) dependency (X)
2. The U.S. government is
a) parliamentary (X)
c) closed
b) absolutist
d) constitutional
3. Germany and Israel have this system of government.
a) single-party
c) two-party
b) dominated one party
d) multiparty (X)
4. The former Soviet Union used to have this system of government.
a) single-party
c) two-party
b) dominated one party (X)
d) multiparty
5. North Korea employs this system of government.
a) single-party
c) two-party
b) dominated one party (X)
d) multiparty
6. This electoral system has lower spending on social security and welfare.
a) majoritarianism (X)
c) single-party system
b) proportionality
d) dominated one-party system
7. Government interference or participation in business activities is at the maximum for this
economic system.
a) capitalism
c) communism (X)
b) socialism
d) modified communism
8. This is not a characteristic of "centrally planned economies."
a) a communist philosophy
b) an active government role in economic planning
c) bureaucratic political/economic systems
d) market-oriented economy (X)
9. Sweden has adopted this economic system.
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a) capitalism
c) communism
b) socialism (X)
d) modified communism
10. The market-oriented system is called
a) capitalism (X)
c) communism
b) socialism
d) modified communism
11. Countries all over the world have been moving in the direction of this economic system.
a) capitalism (X)
c) communism
b) socialism
d) modified communism
12. The kind of capitalism that took place in the United States is known as
a) cooperative capitalism
c) managerial capitalism (X)
b) personal capitalism
d) active capitalism
13. The United Kingdom practices
a) cooperative capitalism
c) managerial capitalism
b) personal capitalism (X)
d) modified capitalism
14. This type of capitalism requires companies to have a social purpose and consider interests of
all stakeholders.
a) frontier
c) cooperative (X)
b) personal
d) managerial
15. Germany is an example of this type of capitalism.
a) frontier
c) communitarian/cooperative
b) personal
d) managerial
16. Personal capitalism is most common in
a) the United States
c) the United Kingdom (X)
b) Germany
d) Japan
17. This country is an example of frontier capitalism.
a) China
c) Cambodia
b) Russia
d) all of the above (X)
18. This country is an example of frontier capitalism.
a) China (X)
c) Canada
b) Japan
d) Mexico
19. This form of capitalism is practiced when communist or socialist countries experiment with
capitalism or when their government agencies engage in production for profit.
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a) managerial
c) cooperative
b) personal
d) frontier (X)
20. This economy bears a great resemblance to laissez faire which is the purest form of
capitalism.
a) Hong Kong (X)
c) the United States
b) Japan
d) Germany
21. A government's taking ownership of a property with some compensation is
a) confiscation
c) nationalization
b) expropriation (X)
d) domestication
22. When a government forces foreign-held companies to partially or totally sell ownership to
local citizens, it uses
a) confiscation
c) expropriation
b) nationalization
d) domestication (X)
23. The U.S. Congress approved the normalization of economic relations with China only after a
satisfactory claims settlement. The claims stemmed from the Chinese government's seizure of
American property after the communists took over in 1949. The Chinese government's seizure is
known as
a) confiscation (X)
c) domestication
b) expropriation
d) creeping expropriation
24. Expropriation is an example of
a) general instability risk
c) operation risk
b) ownership/control risk (X)
d) transfer risk
25. This kind of risk applies to a host government's future acts that might restrict a subsidiary's
payment to the parent firm.
a) general instability risk
c) operation risk
b) ownership/control risk
d) transfer risk (X)
26. A set of actions whose cumulative effect is to deprive investors of their fundamental rights
in the investment is
a) predomestication
c) creeping expropriation (X)
b) country risk
d) nationalization
27. When the government changes investment laws and the changes adversely affect foreign
investors' investment rights (e.g., ownership, profit), the action is known as
a) predomestication
c) creeping expropriation (X)
b) country risk
d) nationalization
28. This concept emphasizes cooperation.
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a) monostasy
c) democracy
b) systasy (X)
d) pluralism
29. The urge to stand alone is
a) monostasy (X)
c) monopoly
b) systasy
d) oligopoly
30. OPIC does not insure U.S. investments against this type of political risk.
a) currency inconvertibility
c) war, revolution, and civil strife
b) expropriation
d) all of the above can be insured (X)
31. This agency helps its more than 100 member states by promoting private investment in
developing countries through insuring investment against political risk.
a) AID
c) WTO
b) IMF
d) MIGA (X)
32. The mission of this organization is to promote private investment in developing countries
through insuring investment against political risk.
a) WTO
c) IMF
b) MIGA (X)
d) GATT
TRUE OF FALSE
1. Dependency theory explains why LDCs (e.g., Latin American countries) are not willing to
embrace MNCs. (T)
2. Because the former Soviet Union had elections and mandatory voting, it was considered to
have the parliamentary form of government. (F)
3. Constitutional hereditary monarchy is a form of a parliamentary government. (T)
4. Research shows that spending on social security and welfare is lower under majoritarian
systems (i.e., when compared to a system of proportionality).
5. Political stability is a function of economic development. (F)
6. Political stability is not necessarily a function of economic development. (T)
7. Democracy is not necessarily a prerequisite for political stability. (T)
8. There is a direct relationship between democracy and economic progress. (T)
9. Political stability is not possible without democracy. (F)
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10. Centrally planned economies tend to have a nonmarket and weak economy. (T)
11. Capitalism is a market-oriented system. (T)
12. Capitalism is the ideal system for all countries. (F)
13. Capitalism should be used to lessen the existence of social class conflicts. (F)
14. Capitalism is the best economic system to serve the nation’s best interests in terms of social
need. (F)
15. It is very unlikely for a country to adopt a system of either 100-percent capitalism or 100percent communism. (T)
16. Sweden's socialism offers employees generous benefits and is responsible for the country's
rapid economic growth. (F)
17. Domestication means preventing a foreign company from entering a country for the purpose
of marketing its goods. (F)
18. The risk of nationalization will likely be more in the future. (F)
19. Expropriation/confiscation is unlikely to resurface in the near future. (T)
20. The political threats to MNCs’ foreign investments are more likely to be “creeping
expropriation” than conventional expropriation. (T)
21. The world has been witnessing a trend toward private ownership and away from government
ownership. (T)
22. MNCs should expect a trend toward government ownership in the near future. (F)
23. Privatization is more a political process than an economic process. (T)
24. There is no working model that supports a “functioning market economy with a massive
state enterprise sector.” (T)
25. The breakup of the Soviet Union can be attributed to the shift toward monostasy to
encourage modernization and competition. (T)
26. Monostasy encourages competition at the expense of cooperation. (T)
27. The premium over the LIBOR rate indicates the extent of the political risk involved. (T)
28. Euromoney’s and Institutional Investor’s country risk ratings are highly correlated and
strongly agree on the creditworthiness of the assessed countries. (T)
29. Euromoney’s and Institutional Investor’s country risk ratings can be replicated with a few
economic variables. (T)
30. One way for a U.S. company to reduce political risk is to "Americanize" its customers
abroad. (F)
31. Political risk cannot be insured. (F)
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32. OPIC assists economic development through investment insurance. (T)
33. MIGA insures investment against both commercial and noncommercial (i.e., political) risk
in developing countries. (F)
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