QUESTION TEXT: The constitution of Country F requires that…
QUESTION TYPE: Principle
- The country must sell state owned entities for the highest price possible.
- The country must make sure that citizens of Country F are the majority owners for at least a year after the sale.
ANALYSIS: The setup itself is confusing. Once you understand it clearly, the answers are a lot easier.
The constitution of Country F gives the government two conflicting requirements. It has to sell the entity for the highest price it can get. And it has to make sure citizens still own most of the new company.
How is this a conflict? Suppose foreigners are offering a higher price for shares of the entity. In that case, the government would have to choose between accepting a lower price from citizens or allowing majority foreign ownership.
To be clear: the governments is not required to own any part of the entity after sale. Instead, it’s required to make sure that private citizens of country F have majority ownership of the new company.
- A minority share of StateAir by non-citizens is fine. This situation violates no rules.
- It doesn’t matter where operations take place. It only matters where the new owners of National Silver live. The majority of the shares will be owned by citizens, so this is fine.
- The question is asking which situation necessarily violates a rule. Here, World Oil Company has made “one of” the highest offers for PetroNat. But that doesn’t matter: the government has to accept the highest offer. We don’t know if the highest offer is foreign or domestic, so we can’t say that this situation must lead to a violation.
- The highest bid for National Telephone is fine. Citizens own a majority of the shares.
- CORRECT. This leads to a violation. Either the government will get a lower price, or foreigners will own most of StateRail.
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