Question 1

Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades?

Accepted Answer

A)   FDI has experienced a slower growth than world output.
B)   FDI has accelerated faster than world trade growth.
C)   FDI has remained the same over the past few decades.
D)   FDI has dropped dramatically.E) B) and C)
F) None of the above

Question 2

What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

Accepted Answer

FDI can take the form of a greenfield in...

Question 3

The _____ of FDI refers to the amount of FDI undertaken over a year.

Accepted Answer

A)   stock
B)   net value
C)   accumulated value
D)   flowE) None of the above
F) A) and B)

Question 4

Which of the following is an example of a greenfield investment?

Accepted Answer

A)   A Chinese sugar maker setting up a sugar crushing facility in Cuba.
B)   A Serbian automobile company purchasing a Croatian component manufacturer.
C)   A Finnish mobile phone manufacturer expanding its production facility in Finland.
D)   An Indian oil exploration company acquiring an oil refining company.E) A) and C)
F) A) and B)

Question 5

Host country citizens that are employed by an MNE following an FDI are an example of a(n)  _____ of FDI.

Accepted Answer

A)   internality
B)   direct effect
C)   externality
D)   indirect effectE) B) and D)
F) B) and C)

Question 6

According to the _____ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.

Accepted Answer

A)   imperialist
B)   conservative
C)   free market
D)   radicalE) A) and B)
F) B) and C)

Question 7

In which of the following situations would FDI improve the current account of the host country's balance of payments?

Accepted Answer

A)   If the foreign subsidiary imports a substantial number of its inputs from abroad
B)   If the FDI reduces existing employment opportunities
C)   If the FDI is a substitute for imports of goods or services
D)   If the FDI results in substitution of products produced domesticallyE) A) and B)
F) A) and C)

Question 8

Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios?

Accepted Answer

A)   Foreign exchange controls
B)   Trade barriers
C)   Transportation costs
D)   Output qualityE) None of the above
F) All of the above

Question 9

Through their choice of policies, home countries can both encourage and restrict FDI by local firms. Policies designed to encourage outward FDI include which of the following?

Accepted Answer

A)   Tax rebates
B)   Political pressure
C)   Expropriation
D)   Domestic risk insuranceE) A) and B)
F) All of the above

Question 10

When a firm is considering FDI, what are the some of the negotiating points it must weigh before making its decision?

Accepted Answer

Despite the move toward a free market st...

Question 11

How is the adverse effect of the balance of payments for the home country due to an FDI usually offset?

Accepted Answer

A)   By increased imports to the home country as a result of the FDI
B)   By the subsequent inflow of foreign earnings
C)   By substituting direct exports made earlier from the home country
D)   By further investments usually made to expand foreign operationsE) A) and D)
F) A) and B)

Question 12

Which of the following observations concerning Knickerbocker's theory is true?

Accepted Answer

A)   It does not explain imitative FDI behavior by firms in oligopolistic industries.
B)   Economists favor this theory as an explanation for FDI compared to the internalization theory.
C)   It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
D)   It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.E) A) and B)
F) B) and D)

Question 13

When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that:

Accepted Answer

A)   have a low value-to-weight ratio.
B)   have a high value-to-weight ratio.
C)   can be produced only in one region.
D)   require locally-sourced raw materials.E) B) and C)
F) A) and B)

Question 14

The free market view argues that international production should be distributed among countries according to the _____.

Accepted Answer

A)   eclectic paradigm
B)   theory of competitive advantage
C)   new trade theory
D)   theory of comparative advantageE) B) and C)
F) None of the above

Question 15

If the FDI is a substitute for imports of goods or services, the effect can be to improve the _____ of the host country's balance of payments.

Accepted Answer

A)   offshore account
B)   currency account
C)   market imperfections
D)   current accountE) A) and B)
F) B) and C)

Question 16

Discuss the benefits and costs of FDI from the perspective of a host country and from the perspective of the home country.

Accepted Answer

The main benefits of inward FDI for a ho...

Question 17

Rivals rarely imitate what a firm does in an oligopoly.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following arises when a country is importing more goods and services than it is exporting?

Accepted Answer

A)   Current account surplus
B)   Trade deficit
C)   Trade surplus
D)   Trade balanceE) All of the above
F) A) and B)

Question 19

Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as:

Accepted Answer

A)   location-specific advantages.
B)   capital-specific advantages.
C)   absolute advantages.
D)   production factor advantages.E) A) and D)
F) B) and C)

Question 20

Which of the following is a home-country policy aimed at limiting outward FDI flow?

Accepted Answer

A)   Taxing domestic companies' foreign earnings at a higher rate than their domestic earnings
B)   Implementation of government-backed insurance programs to cover major types of foreign investment risk
C)   Eliminating double taxation of foreign income
D)   Persuading host countries to relax their restrictions on inbound FDIE) All of the above
F) A) and B)

Exam 8: Foreign Direct Investment

Host country citizens that are employed by an MNE following an FDI are an example of a(n) _____ of FDI.

Correct AnswerverifiedShow Answer

The _____ of FDI refers to the amount of FDI undertaken over a year.

Correct AnswerverifiedShow Answer

Which of the following observations concerning Knickerbocker's theory is true?

Correct AnswerverifiedShow Answer

Which of the following arises when a country is importing more goods and services than it is exporting?

Correct AnswerverifiedShow Answer

What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

Correct AnswerverifiedFDI can take the form of a greenfield in...View AnswerShow Answer

How is the adverse effect of the balance of payments for the home country due to an FDI usually offset?

Correct AnswerverifiedShow Answer

Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades?

Correct AnswerverifiedShow Answer

Rivals rarely imitate what a firm does in an oligopoly.

Correct AnswerverifiedShow Answer

Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios?

Correct AnswerverifiedShow Answer

Through their choice of policies, home countries can both encourage and restrict FDI by local firms. Policies designed to encourage outward FDI include which of the following?

Correct AnswerverifiedShow Answer

When a firm is considering FDI, what are the some of the negotiating points it must weigh before making its decision?

Correct AnswerverifiedDespite the move toward a free market st...View AnswerShow Answer

Discuss the benefits and costs of FDI from the perspective of a host country and from the perspective of the home country.

Correct AnswerverifiedThe main benefits of inward FDI for a ho...View AnswerShow Answer

The free market view argues that international production should be distributed among countries according to the _____.

Correct AnswerverifiedShow Answer

According to the _____ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.

Correct AnswerverifiedShow Answer

If the FDI is a substitute for imports of goods or services, the effect can be to improve the _____ of the host country's balance of payments.

Correct AnswerverifiedShow Answer

In which of the following situations would FDI improve the current account of the host country's balance of payments?

Correct AnswerverifiedShow Answer

Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as:

Correct AnswerverifiedShow Answer

Which of the following is a home-country policy aimed at limiting outward FDI flow?

Correct AnswerverifiedShow Answer

Which of the following is an example of a greenfield investment?

Correct AnswerverifiedShow Answer

When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that:

Correct AnswerverifiedShow Answer

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FDI can take the form of a greenfield in...
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Despite the move toward a free market st...
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The main benefits of inward FDI for a ho...
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