When Microsoft, a U.S. company, establishes a distribution center in Canada, U.S. net capital outflow
A)increases because Microsoft makes a foreign portfolio investment in Canada.
B)decreases because Microsoft makes a foreign portfolio investment in Canada.
C)increases because Microsoft makes a foreign direct investment in Canada.
D)decreases because Microsoft makes a foreign direct investment in Canada.

Question

Quizplus · Accepted Answer

Establishing a distribution center in Canada constitutes a foreign direct investment because Microsoft is investing in business operations in a foreign country. This increases U.S. net capital outflow as funds are being sent out of the U.S. to invest in assets overseas.