Question 1

What impacts do FDI inflows have on the host country economy?

Accepted Answer

The answer of What impacts do FDI inflows have on...

Question 2

What impacts do FDI outflows have on the home country economy?

Accepted Answer

The answer of What impacts do FDI outflows have on...

Question 3

How can governments encourage or restrict FDI?

Accepted Answer

The answer of How can governments encourage or restrict FDI?...

Question 4

Honda, an automaker from Japan, has set up plants to manufacture cars in the United States. This is an example of:

Accepted Answer

This is an example of foreign direct investment, where a company from one country (Honda from Japan) establishes operations in another country (the United States) by setting up manufacturing plants.

Question 5

According to the OECD benchmark definition, FDI occurs when the direct investor generally owns _________ of the voting power of the enterprise, unless it can be proven that less ownership enables an effective voice in management.

Accepted Answer

The OECD benchmark definition states that FDI occurs when the direct investor owns 10% or more of the voting power of the enterprise, which is considered sufficient to establish a controlling interest, unless it can be demonstrated that a smaller percentage still allows an effective voice in management.

Question 6

The __________ of FDI records the amount of FDI undertaken during a given period of time; and the __________ of FDI refers to the total accumulated value of FDI in a country or region.

Accepted Answer

The first blank refers to the measure of the amount of FDI undertaken during a given period of time, which is known as "flow" of FDI. The second blank refers to the total accumulated value of FDI in a country or region, which is known as the "stock" of FDI. Therefore, the correct answer is option B - flow, stock.

Question 7

The following activities are FDI except _________.

Accepted Answer

Fidelity Insurance purchasing bonds issued by Airbus is not a Foreign Direct Investment (FDI) as it does not involve acquiring ownership or control in a foreign company through the purchase of equity. Choices A, B, and C involve setting up operations, building a plant or acquiring majority shares in a foreign company, which are all examples of FDI.

Question 8

Once a firm undertakes FDI, it becomes a _________.

Accepted Answer

FDI stands for Foreign Direct Investment and refers to a firm investing in and managing operations in another country. Once a firm undertakes FDI, it becomes a multinational corporation, as it is operating in multiple countries and managing resources across borders. A portfolio investor is someone who invests in stocks, bonds, and other financial assets but does not have management control over the operations. A foreign firm is a company that operates in a country other than its home country, which could include firms that have not undertaken FDI. An investment enterprise is a general term that could refer to any type of business that makes investments.

Question 9

The following investments are classified as FDI except _________.

Accepted Answer

Portfolio investment is not classified as foreign direct investment as it involves buying stocks or bonds of a foreign company without having any control over the management of the company. FDI, on the other hand, involves a significant degree of ownership and control in the foreign entity. The other options listed (equity capital, reinvestment of earnings, and intra-company loans) are all forms of FDI.

Question 10

BMW, a German automobile company, built a brand new manufacturing plant in Mexico. This is an example of ________.

Accepted Answer

Building a brand new manufacturing plant in a different country is considered a greenfield investment.

Question 11

In comparison to M&A, starting up new operations has the following advantage:

Accepted Answer

Starting up new operations allows the investor complete control over the design and implementation of the operation, which is not the case with M&A, where the investor has to work with an existing framework. This can enable the investor to set up operations that are more in line with their desired outcomes and strategies.

Question 12

A U.S.-based computer manufacturer decided to acquire a supplier of computer parts (like motherboards and keyboards) in China. This is an example of _________.

Accepted Answer

The acquisition of a supplier of computer parts in China is an example of vertical FDI, as it involves the integration of two companies in different stages of the production process. The U.S.-based computer manufacturer is integrating with a supplier of computer parts in China, which is a different part of the production chain.

Question 13

Backward vertical FDI is an investment through which ___________.

Accepted Answer

Backward vertical FDI is when the investor engages upstream activities in the value chain, such as acquiring raw materials or resources for production.

Question 14

In comparison to wholly owned investments, partially owned investments or joint ventures have the following advantages except __________.

Accepted Answer

Wholly owned investments offer a higher degree of control compared to partially owned investments or joint ventures, where control must be shared with other partners.

Question 15

Which of the following statement is not true regarding the trends of global FDI?

Accepted Answer

Global FDI flows have not grown continuously every year since the 1990s; they have experienced fluctuations due to various economic factors, including recessions.

Question 16

Which of the following statement is not true regarding the trends of global FDI?

Accepted Answer

The statement "Historically, the majority of global FDI has flowed into developing countries" is not true. The majority of global FDI has traditionally flowed into developed countries, although there has been a shift in recent years with more FDI flowing into developing countries.

Question 17

Between the two forms of FDI, usually ______ is more popular in developed countries, and _____ is more popular in developing countries.

Accepted Answer

Developed countries typically have more established businesses, making mergers and acquisitions a more popular choice for FDI. Developing countries often do not have as many established businesses, so greenfield investment is a more popular choice as it involves building a new business from scratch.

Question 18

The monopolistic advantage theory suggests the following except _______.

Accepted Answer

The monopolistic advantage theory primarily focuses on how multinational corporations (MNCs) use their firm-specific advantages to engage in foreign direct investment (FDI) and exploit their existing monopolistic advantages. It does not inherently address the development of new competitive advantages in overseas markets, which is more aligned with dynamic capabilities and innovation theories.

Question 19

High transportation costs and tariffs imposed on imports help explain why many firms prefer __________ over __________ for international expansion.

Accepted Answer

High transportation costs and tariffs make exporting less attractive, while foreign direct investment allows a firm more control over their operations and supply chain, potentially mitigating these costs. Licensing does not address these issues, as it involves granting a foreign firm the right to use the company's intellectual property in exchange for royalties, and does not involve physical production or operations.

Question 20

Which of the following theories suggest that a company like IKEA should set up its own overseas stores rather than licensing its brand and business model to others?

Accepted Answer

Internalization theory suggests that companies should set up their own overseas stores rather than licensing their brand and business model to others in order to have greater control over their operations and minimize the risk of intellectual property loss.

Quiz 3: Foreign Direct Investment

What impacts do FDI inflows have on the host country economy?

What impacts do FDI outflows have on the home country economy?

How can governments encourage or restrict FDI?

Honda, an automaker from Japan, has set up plants to manufacture cars in the United States. This is an example of:

According to the OECD benchmark definition, FDI occurs when the direct investor generally owns _________ of the voting power of the enterprise, unless it can be proven that less ownership enables an effective voice in management.

The of FDI records the amount of FDI undertaken during a given period of time; and the of FDI refers to the total accumulated value of FDI in a country or region.

The following activities are FDI except _________.

Once a firm undertakes FDI, it becomes a _________.

The following investments are classified as FDI except _________.

BMW, a German automobile company, built a brand new manufacturing plant in Mexico. This is an example of ________.

In comparison to M&A, starting up new operations has the following advantage:

A U.S.-based computer manufacturer decided to acquire a supplier of computer parts (like motherboards and keyboards) in China. This is an example of _________.

Backward vertical FDI is an investment through which ___________.

In comparison to wholly owned investments, partially owned investments or joint ventures have the following advantages except __________.

Which of the following statement is not true regarding the trends of global FDI?

Which of the following statement is not true regarding the trends of global FDI?

Between the two forms of FDI, usually __ is more popular in developed countries, and _ is more popular in developing countries.

The monopolistic advantage theory suggests the following except _______.

High transportation costs and tariffs imposed on imports help explain why many firms prefer over for international expansion.

Which of the following theories suggest that a company like IKEA should set up its own overseas stores rather than licensing its brand and business model to others?