Introductory Business Law CLEP Prep Practice Exam

What is an arbitration?

1. A legal form of alternative dispute resolution

2. A legal form of dispute resolution where the outcome is binding

3. A out-of-court legal settlement

4. A civil trial in which a jury decides a verdict

The correct answer is: A legal form of alternative dispute resolution

An arbitration is a legal form of alternative dispute resolution where parties involved in a dispute agree to have a neutral third party, the arbitrator, hear their case and make a decision. This option is correct because an arbitration is one of the methods used to resolve disputes outside of court, but it is not the only option. Option B is incorrect because while an arbitration's outcome is generally binding, it is not always the case and can be negotiated beforehand. Option C is incorrect because an out-of-court legal settlement may be reached through negotiation between the parties without the involvement of a neutral third party. Option D is incorrect because a civil trial involves presenting arguments and evidence before a judge or jury, whereas an arbitration involves presenting arguments and evidence before a neutral third party arbitrator.