Chapter 02

Question 1

Civil Law

Answer 1

Uses pre-existing codes and is the most frequently used legal system in the world.

Question 2

Common Law

Answer 2

Relies on the balance of previous cases or precedent to resolve legal disputes.

Question 3

Islamic Law

Answer 3

Relies upon religious stipulations in the Quran—also known as Sharia (or God’s rules).

Question 4

Legal Protection against discrimination in The US

Answer 4

Civil Rights Act of 1964 (and the 1990/91 amendment)
Forbids U.S. firms from discriminating against employees at home and in foreign countries.
Foreign multinationals are also subject to the Civil Rights Act while operating in the United States.

Question 5

General Agreement on Tariffs and Trade Organization (GATT)

Answer 5

Purpose was to extend fair and similar trading and tariff policies to all other GATT members.
Membership conferred “most-favored-nation” status

Question 6

World Trade Organization

Answer 6

Is successor to GATT.
Requires members to “harmonize” tariffs and business laws with WTO guidelines.
Conducts negotiations (“rounds”) to set major agreements among members.

Question 7

Source of Jurisdiction

Answer 7

Which court or country has or should have jurisdiction in situations involving cross-border trade and legal conflicts in which international firms are involved?
Should firms follow home-country laws or be subject to the jurisdiction of the legal system of the countries in which they are conducting business?
How are foreign firms to be held responsible for the effects of their products and alliances in foreign markets?

Question 8

Political Risk

Answer 8

The extent to which actions of a country or its people may affect the viability of a firm.

Question 9

Types of Political Risk

Answer 9

Changes in the political/economic environment.
Changes in prevailing domestic economic conditions.
Changes in external economic relations

Question 10

Nationalization

Answer 10

Occurs when a government forces the transfer of ownership from private to state control

Question 11

Expropriation

Answer 11

Occurs when a government compensates a company after nationalizing its assets

Question 12

Sovereign Immunity

Answer 12

The principle that no nation has the right to challenge the internal actions of another state, if that state has proceeded justly

Question 13

Confiscation

Answer 13

When nationalization of foreign firms occurs with little or no compensation offered

Question 14

Tariffs

Answer 14

Fees paid by an exporter to the country of import that increase the price of a foreign product or service relative to the domestic counterpart

Question 15

Export Controls

Answer 15

Restrictions imposed by governments on what can be exported from a country

Question 16

Sanctions

Answer 16

Sets of specific restraints imposed by governments on international trade

Question 17

Embargo

Answer 17

Government-imposed unilateral prohibition of trade with another country

Question 18

Diversion

Answer 18

Using an export license to provide materials to a third party not included on the license

Question 19

Boycott

Answer 19

Collaborative effort among countries to prohibit international trade with another nation

Question 20

approaches to managing risk

Answer 20

Merging/linking or defensive/reactive

Question 21

Legal protection of products against piracy and counterfeiting

Answer 21

Trademarks, patents, copyrights

Question 22

Overseas private investment corporations

Answer 22

US federal agency providing comprehensive insurance programs to firms that invest in new and expanding businesses in over 140 countries.

Question 23

Political Risk Insurance

Answer 23

Protects firms against the risks of expropriation, war, revolution, and negative economic events (e.g., inconvertibility of local currency).