Which of the following characterizes country risk? A) The ...

[Diane]

Which of the following characterizes country risk?
 
  A) The political and legal systems of adjacent nations greatly impact the country risk of nations that host foreign firms.
  B) Country risk will change only after the creation of laws and regulations that affect foreign firms.
  C) A nation's country risk level remains fairly constant until the election and installation of a new political leader.
  D) Country risk is always present, but its nature and intensity vary over time and from country to country.

Question 2

Describe how the political and legal systems of a host country can both harm and benefit a foreign firm.
 
  What will be an ideal response?

[TheNamesImani]

Answer to Question 1

D

Answer to Question 2

The political and legal systems of a host country can be both beneficial and harmful to a foreign firm. Firms can benefit from preferential subsidies, government incentives, and protection from competition that reduce business costs and influences strategic decision making. Numerous governments encourage local MNE investment by offering tax holidays and cash incentives to employ local workers.
On the other hand, political or legislative actions can harm business interests. Laws may be unexpectedly strict or result in unintended consequences. Many laws favor host-country interests, that is, interests in foreign countries where the firm has direct operations.