Chapter 6 Political and legal systems in national environments Flashcards
Four types of risk and international business
- Cross cultural risk.
- Commercial risk.
- Currencies(financial) risk
- Country risk.
The economic, social and political conditions and events in a foreign country that may adversely affect a financial institutions operations
Country risk/political risk
Two main systems for the sources of country risk
- Political system.
- Legal system.
Defines the process for making official government decisions
Political system
A system for interpreting and enforcing laws
Legal system
Three major types of political systems
- Authoritarianism.
- Socialism.
- Democracy.
- associated with command economies
- centralizes power and government
- Soviet union, China
Authoritarianism
- refers to a form of government in which people choose leaders by voting
- characterized by 1. private property rights with encourages innovation 2. Limited government, which allows for more open, Marcus.
Democracy
(virtually all democracies include elements of socialism)
- associated with mixed economies
- based on a collectivist ideology
- collective welfare of people to outweigh the welfare of the individual
- Government controls, some basic means of production distribution and commercial activity
Socialism
- associated with market economies
- ideology that supports, economic, and social interventions to promote social justice
- Western Europe, Brazil, India
Social democracy
- free and fair elections
- right to form political parties
- existence of a legislative body
- self determination
Political freedom
- flourishes when government support freely operating markets and rule of law
- ease with commercial activity is carried out according to market forces
Economic freedom
Legal system in which rules are clear publicly disclosed fairly enforced and widely respected by individuals, organizations and the government
Rule of law
Nations are primarily governed by one of four basic legal systems
- Common law.
- Civil law.
- Religious law.
- Mixed
- the basis of law is tradition, past practice, and legal presidents set by courts via interpretation of statutes, legislation, and past railings
- originated in England and spread to Australia, Canada and the United States
Common law/ case law
- a legal system originating in mainland Europe, in adopted in much of the world
- Origins go back to the framework of Roman law and Napoleonic code
- core principles codified into a referable system which serves as a primary source of law
Civil law
- influenced by religious beliefs, ethical codes, and moral values viewed as mandated by a supreme being
- the most important systems are based on Hindu, Jewish, and Islamic law
- Islamic law known as a Sharayah, is based on the Quran the holy book of Muslims
Religious law
How do political systems create challenges for firms and international business?
- Government seizure
- embargo and sanctions
- boycott against firms or nations
Is seizure of corporate assets without compensation
Confiscation
Is seizure with compensation
Expropriation
Seizure of an entire industry with or without compensation
Nationalization
An official band to exports to, or imports from a particular country to isolate and punish its government
Embargo
A type of trade penalty imposed on one or more countries one or more countries
Sanction
(typically take the form of tariffs, trade barriers, import duties, and import or export quotes
A voluntary refusal to engage in commercial dealings with a nation or a company
Boycott
Application of home country laws to persons or conduct outside national borders
Extraterritoriality
Companies regularly reveal substantial information about their financial condition and accounting practices
Transparency
