Chp 6

Question 1

What are the 5 determinants of political risks?

Answer 1

1. Conflict & Violenve
2. Terrorism & Kidnapping
3. Property Seizure
4. Policy Changes
5. Local Content Requirements

Question 2

What are the 3 main sources of Conflict and Violence?

Answer 2

1. Citizens protesting against government
2. Territorial disputes
3. Disputes based on ethical, racial, or religious divisions

Question 3

What are some current examples of conflict and violence?

Answer 3

Citizens protesting against government with Russia

US making investment in Egypt

Question 4

What is Terrorism and Kidnapping?

Answer 4

unlawful acts of violence for a variety of reasons: ransom, overthrow government, release of imprisoned colleagues, revenge, and punish religious nonbelievers.

Question 5

What are some situations of Terrorism and kidnapping?

Answer 5

• kidnapping for ransom> paying ransom becomes counterproductive
• countermeasures by industry
• chemical and biological terrorism

Question 6

Kidnapping as a means of ___ terrorist groups

Answer 6

funding

Question 7

Who are sometimes targets for terrorism and kidnapping?

Answer 7

Business executives (local and international)

Question 8

What is Property Seizure?

Answer 8

one of the highest risks for an investor; government seizing of private assets

Question 9

Under Property Seizure, what is Confiscation?

Answer 9

Government seizure of assets to a small # of companies without compensation

Question 10

Under Property Seizure, what is Expropriation and where does it mostly occur?

Answer 10

• Government seizure of assets to a small # of companies with compensation
• democracy’s and open market economies

Question 11

Under Property Seizure, what is Nationalization?

Answer 11

Government seizure of assets to a large # of companies with/without compensation( doesn’t matter)

Question 12

Why are firms Nationalized? (6)

Answer 12

1. Extra $: gov suspects hidden profits
2. Profitability: gov seeks to increase firms efficiency and profits
3. Ideology
4. Job Preservation: gov saves jobs by saving dying industries
5. Control follows money: subsidized firms often target of nationalization
6. Happenstance: as with nationalization of German firms after WWII

Question 13

What are the 6 common complaints privately held companies say about government-owned companies?

Answer 13

1. Cut prices unfairly- don’t have to make profits
2. Access cheaper financing
3. Access government contracts
4. Receive export assistance
5. Can hold down wages with gov assistance
6. Receive government subsidies

Question 14

What are local content requirements?

Answer 14

laws stipulating that a specified amount of good/service be supplied by producers in domestic market

Question 15

What are some issues to consider for Local content requirements?

Answer 15

cost, lower risk of confiscation and expropriation, impacting local communites

Question 16

What are the 3 key points to Privatization?

Answer 16

1. Transfer of public sector assets to private sector
2. Transfer of management of state activities through contracts & leases
3. Contracting of activities previously conducted by the state

Question 17

What are some factors that determine policy changes?

Answer 17

Ideology of political parties newly in power
political pressure from special interest groups
civil or social unrest

Question 18

What are 2 exapmles of relevant policy types?

Answer 18

1. Company ownership policies> ownership of firms

2. Cross-border investment policies