Question 1

When a firm exports its products to a foreign country, foreign direct investment occurs.

Accepted Answer

Foreign direct investment involves a firm investing directly in facilities to produce or market a product in a foreign country, not merely exporting products.

Question 2

In terms of employment, the indirect effects of FDI are often as large as, if not larger than, the direct effects.

Accepted Answer

Indirect effects of FDI, such as increased demand for local suppliers and services, can lead to significant job creation, sometimes surpassing the direct employment provided by the foreign firms themselves.

Question 3

Historically, most FDI has been directed at the developed nations of the world.

Accepted Answer

Historically, developed nations have attracted the majority of Foreign Direct Investment (FDI) due to their stable economic environments, advanced infrastructure, and established markets.

Question 4

The flow of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.

Accepted Answer

The flow of foreign direct investment refers to the amount of foreign direct investment undertaken over a given time period, not the total accumulated value. The total accumulated value is referred to as the stock of foreign direct investment.

Question 5

The eclectic paradigm is based on the idea that intellectual property is of considerable importance in explaining the direction of FDI.

Accepted Answer

The answer of The eclectic paradigm is based on the...

Question 6

According to internalization theory, one drawback of licensing is that it might result in a firm giving away technological know-how to a competitor.

Accepted Answer

Internalization theory suggests that licensing can lead to the dissemination of proprietary technology to competitors, as the licensee may use the knowledge to compete against the licensor.

Question 7

The United Nations was the first multinational institution to govern FDI beginning in the 1930s.

Accepted Answer

The United Nations was established in 1945, and it was not the first multinational institution to govern Foreign Direct Investment (FDI).

Question 8

There are at least 30 firms that control 70 percent of the computer printer business in Europe. This is an example of an oligopoly.

Accepted Answer

An oligopoly is a market structure where a small number of firms have significant market power. Having at least 30 firms controlling 70 percent of the market does not fit the definition of an oligopoly, as it suggests a more competitive market with many players.

Question 9

Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.

Accepted Answer

Many countries have established government-backed insurance programs to protect investors from risks such as expropriation, war, and profit repatriation issues, to encourage foreign investment.

Question 10

Performance requirements are controls over the behavior of the MNE's local subsidiary.

Accepted Answer

Performance requirements are indeed controls imposed by multinational enterprises (MNEs) on their local subsidiaries to ensure they meet certain operational, financial, or strategic objectives.

Question 11

The process of exporting grants a foreign entity the right to produce and sell a firm's product.

Accepted Answer

Exporting involves selling goods or services produced in one country to another, but it does not grant production rights to the foreign entity.

Question 12

According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.

Accepted Answer

The free market view supports the idea of comparative advantage, where countries focus on producing goods and services they can produce most efficiently, maximizing economic efficiency and trade benefits.

Question 13

Mergers and acquisitions take longer to execute than a greenfield investment.

Accepted Answer

Mergers and acquisitions can often be executed more quickly than greenfield investments, as they involve acquiring existing operations rather than building new ones from scratch.

Question 14

Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home.

Accepted Answer

Countries often adjust tax policies to incentivize domestic investment, aiming to boost economic growth and retain capital within their borders.

Question 15

The attractiveness of exporting is reduced when a product can easily be produced in almost any location.

Accepted Answer

When a product can be easily produced in almost any location, the advantages of exporting, such as cost savings from centralized production, are diminished, making local production more attractive.

Question 16

A country that follows the pragmatic nationalist view would agree that FDI can benefit a host country through capital, skills, and jobs but these come at a cost.

Accepted Answer

A pragmatic nationalist view acknowledges the benefits of FDI but also considers the potential costs, such as loss of control over domestic industries and negative impacts on national sovereignty.

Question 17

An acquisition does not result in a net increase in the number of players in a market.

Accepted Answer

An acquisition involves one company purchasing another, which consolidates the two entities into one, thus not increasing the number of players in the market.

Question 18

The globalization of the world economy is having a negative effect on the volume of FDI.

Accepted Answer

Globalization generally increases the volume of Foreign Direct Investment (FDI) as it encourages cross-border trade and investment by reducing barriers and increasing market access.

Question 19

Offshore production refers to FDI undertaken to serve the host market.

Accepted Answer

The term offshore production refers to FDI undertaken to serve the home market.

Question 20

FDI can result in a positive contribution to a host economy by supplying capital and technology which boost the country's economy.

Accepted Answer

Foreign Direct Investment (FDI) can enhance a host country's economy by providing capital, technology, and expertise, leading to increased productivity, job creation, and economic growth.

Quiz 8: Foreign Direct Investment