Deck 7: Foreign Direct Investment

Question 1

The flow of foreign direct investment out of a country is

A) forfeiture of national investment.
B) loss of national investment.
C) expenditure of FDI.
D) outflow of FDI.
E) a reflection of the loss of jobs.

Answer 1

D

Question 2

When a firm invests directly in new facilities to produce and/or market a product in a foreign country,_____________ occurs.

A) reciprocal foreign investment
B) cross-border international investment
C) international capital investment
D) international expansion
E) foreign direct investment

Answer 2

E

Question 3

The _____________ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year).The _____________ of foreign direct investment refers to the total accumulated value of foreign-owned assets at any time.

A) portfolio; current
B) flow; stock
C) stock; flow
D) stockpile; portfolio
E) annual accumulation; total accumulation

Answer 3

B

Question 4

A(n)______________ is a company that owns business in more than one country but does not identify itself with one national home.

A) cross-cultural enterprise
B) synergistic enterprise
C) transnational corporation
D) international conglomerate
E) global enterprise

Question 5

Besides the United States,the other important source country for FDI today is _____.

A) China
B) Spain
C) Greece
D) India
E) Japan

Question 6

Generally speaking,there has been a(n)______________ in the past 35 years.

A) increase in the stock but not in the flow of FDI in the world economy
B) marked increase in both the flow and stock of FDI in the world economy
C) marked decrease in both the flow and stock of FDI in the world economy
D) increase in flow but not the stock of FDI in the world economy
E) greater restrictions on the outflow, while liberalization of the inflow of FDI

Question 7

_____________ occurs,according to the U.S.Department of Commerce,whenever a U.S.citizen,organization,or affiliated group takes an interest of 10 percent or more in a foreign business entity.

A) Cross-border international investment
B) Foreign direct investment
C) Reciprocal foreign investment
D) International capital investment
E) International currency transfer

Question 8

According to the opening case,a competitive advantage of Walmart in India was its _______.

A) store size
B) store locations
C) management training
D) produce
E) Walmart is not in India

Question 9

Which of the following two statements accurately reflects the trend in foreign direct investments over the past 30 years?

A) There has been a rapid increase in the total volume of FDI undertaken and there has been a change in the importance of various countries as sources for FDI
B) There has been a rapid increase in the total volume of FDI undertaken and the countries that have been instrumental as sources of FDI have remained the same
C) There has been a rapid decrease in the total volume of FDI undertaken and there has been a change in the importance of various countries as sources for FDI
D) There has been a rapid decrease in the total volume of FDI undertaken and the countries that have been instrumental as sources of FDI have remained the same
E) There has been a slow increase in the total volume of FDI undertaken and there has been no change in the importance of various countries as sources for FDI

Question 10

Which of the following is not true about why firms prefer to acquire existing assets rather than undertake greenfield investments?

A) Foreign firms are acquired because those firms have valuable strategic assets.
B) Firms make acquisitions because they believe they can increase the efficiency of the acquired unit by transferring capital, technology, or management skills.
C) Firms make acquisitions because they believe it will make more profits for the home firm and home country.
D) Mergers and acquisitions are quicker to execute than greenfield investments.
E) Mergers and acquisitions are cheaper than greenfield investments.

Question 11

_______________ has not contributed to the increase in FDI over the past several years.

A) Globalization of the world economy
B) The desire to have production facilities close to major customers
C) A strong U.S. economy
D) Dramatic shift towards socialist and communist political institutions
E) Increasing corporate profits

Question 12

If Siemens,a German firm,purchased a 20% interest in a manufacturing firm in Canada,Siemens would be engaging in

A) foreign direct investment.
B) global entrepreneurship.
C) cross-border international investment.
D) multinational investment.
E) minority interest acquisition.

Question 13

The establishment of a wholly new operation in a foreign country is referred to as a(n):

A) outplacement
B) greenfield investment
C) new venture
D) exporting
E) turn-key investment

Question 14

For the most part Canadian FDI outflow in last few years went to ________________.

A) the U.S. multinational corporations
B) Chinese manufacturers
C) Canadian affiliates and subsidiaries
D) British domestic companies
E) Japanese autoparts manufacturers

Question 15

If TransCanada Pipelines,a Canadian based corporation,purchased a 50% interest in a company in Italy,that purchase would be an example of

A) multinational investment.
B) reciprocal foreign investment.
C) foreign direct investment.
D) cross-boarder international investment.
E) foreign joint venture

Question 16

The flow of foreign direct investment into a country is referred to as the

A) inflow of FDI.
B) FDI capture.
C) FDI gain.
D) accrual of FDI.
E) FDI wealth accrual.

Question 17

FDI is an acronym that stands for

A) Federation of Direct Investors.
B) Federal Diversification Initiative.
C) Foreign Direct Investment.
D) Formal Direct Internationalization.
E) Fund for Direct Investment.

Question 18

Since World War II,the largest source country for FDI outflows has been _____________,though this is not true in 2015.

A) Canada
B) China
C) United States
D) United Kingdom
E) Japan

Question 19

Historically,most FDI has been directed at ______________.

A) developed nations
B) developing nations
C) China
D) India
E) the Middle East

Question 20

For the most part FDI flows have _____________ over the past 35 years.

A) shrunk
B) stayed the same
C) varied
D) grown
E) averaged $1.2 billion

Question 21

An industry composed of a limited number of large firms (i.e.an industry in which four firms control 80 percent of a domestic market)is referred to as a(n):

A) syndicate
B) cartel
C) oligopoly
D) monopoly
E) stratified polity

Question 22

FDI is often undertaken as a response to:

A) exporting
B) FDI outflows
C) FDI inflows
D) threatened import tariffs
E) high GDP levels

Question 23

High transportation costs and/or tariffs imposed on imports help explain why many firms prefer _____________ over _____________.

A) foreign direct investment or licensing; exporting
B) foreign direct investment or licensing; joint ventures
C) exporting; foreign direct investment or licensing
D) strategic alliances; foreign direct investment or licensing
E) licensing; foreign direct investment

Question 24

According to internalization theory,licensing has three major drawbacks as a strategy for exploiting foreign market opportunities.Each of the following is a drawback of licensing except:

A) licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.
B) licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.
C) licensing helps a firm avoid making a direct foreign investment in a foreign country.
D) when a firm's competitive advantage is based not so much on its products as on the management, marketing, and manufacturing capabilities that produce those produces, licensing fails to capture those advantages.
E) none of these answers is correct.

Question 25

According to the textbook,a firm will favor _____________ over _______________ when it wishes to maintain control over its technological know-how,or over its operations and business strategy.

A) foreign direct investment; exporting
B) licensing; foreign direct investment
C) foreign direct investment; licensing
D) exporting; foreign direct investment
E) exporting; licensing

Question 26

When ________________,a firm will favor FDI over exporting as an entry strategy,according to the textbook.

A) interest rates or government policy make exporting unattractive
B) transportation costs or trade barriers make exporting unattractive
C) cultural barriers or trade barriers make exporting unattractive
D) cultural barriers or government policy make exporting unattractive
E) internalization theory is not applicable

Question 27

According to the textbook,FDI is expensive because

A) a firm must pay a high franchising fee to participate in foreign direct investment in most countries.
B) a firm must pay the transportation costs to ship domestically produced products overseas.
C) a firm must establish production facilities in a foreign country or acquire a foreign enterprise.
D) a firm must pay a high licensing fee to participate in foreign direct investment in most countries.
E) a firm must pay taxes in both countries.

Question 28

If one firm in a(n)_______________ cuts prices,this can take market share away from its competitors,forcing them to respond with similar price cuts in order to retain their market share.

A) monopoly
B) oligopoly
C) multipoint competition
D) cartel
E) price fixing agreement

Question 29

_______________,a branch of economics,seeks to explain why firms often prefer foreign direct investment to licensing as a strategy for entering foreign markets.

A) Comparative advantage theory
B) Globalization theory
C) Cosmopolitan theory
D) Internalization theory
E) Patterns of FDI

Question 30

_______________ involves producing goods at home and then shipping them to the receiving country for sale.

A) Foreign direct investment
B) Licensing
C) Franchising
D) Exporting
E) Offshoring

Question 31

Some of Toyota's competitive advantage is due to its superior ability to manage the design,engineering and manufacturing of its automobiles.Despite the fact that some of its products could be licensed for production by another company it does not do so because _____________.

A) Toyota does not want to lose control over its technology
B) Toyota are strong believers in the internalization theory
C) Toyota does not want to share profits and it is a large enough company to enter every market
D) another company could not be as efficient a producer of cars as Toyota
E) all of these answers are correct

Question 32

Much foreign direct investment is undertaken as a response to actual or threatened

A) trade barriers.
B) economic sanctions.
C) legal action.
D) international appeals.
E) market opportunities.

Question 33

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 have a(n):

A) high value-to-weight ratio
B) moderate value-to-weight ratio
C) low value-to-weight ratio
D) extremely high value-to-weight ratio
E) value to weight ratio

Question 34

Four Seasons Hotels and Resorts has shifted their focus from the acquisition of foreign properties to offering management contracts for local owners of hotel properties.This shift has taken place,because __________________.

A) the FDI climate is less favourable to hotel developments
B) the low Canadian dollar in the early 2000s made foreign acquisitions prohibitively expensive
C) they preferred to license their business system
D) international travel and tourism went into a steep decline after the terrorist attacks of 9/11
E) service was such an important component of their brand and because it ensured a steady income

Question 35

Control over manufacturing,marketing,and strategy is granted to a licensee in return for:

A) increased taxation.
B) decreased taxation.
C) a royalty fee.
D) company stock given to the government.
E) profit sharing.

Question 36

Studies of U.S.enterprises suggest that firms based in _____________ industries tend to imitate each other's foreign direct investment patterns.

A) oliogopolistic
B) monopolistic
C) syndicated
D) munificent
E) related

Question 37

If 3M,an American firm,produces adhesive tape in St.Paul,Minnesota,and ships the tape to South Korea to be sold,that is an example of:

A) exporting
B) licensing
C) franchising
D) cross-border investing
E) international trade

Question 38

The _______________ is a theory of foreign direct investment that combines two other perspectives into a single holistic explanation of FDI.

A) versatile model
B) internationalization model
C) globalization paradigm
D) eclectic paradigm
E) unified theory of FDI

Question 39

The licensor _____________ in return for licensing one of its products to a foreign firm.

A) gets preferential trade treatment from the country of the licensee
B) gets a special subsidy from the country of the licensee
C) collects a royalty fee on every unit the licensee sells
D) gets a one time payment from the licensee
E) protects their local market

Question 40

Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?

A) franchising
B) exporting
C) licensing
D) foreign direct investment
E) merger

Question 41

______________ are knowledge spillovers that occur when companies in the same industry locate in the same area.

A) Inward overflows
B) Cognitive overflows
C) Concentric overflows
D) Synergy
E) Externalities

Question 42

What is the record of a country's export and import of goods and services referred to as?

A) Current account
B) Foreign account
C) Internal account
D) Tariff account
E) National account

Question 43

Vernon's theory says that firms invest in a foreign country when:

A) demand is high and supply is low.
B) demand in that country will support foreign economic conditions.
C) demand in that country will support local production.
D) demand is high and raw materials in that country can meet production needs.
E) market demand is growing.

Question 44

In a ________________ view,FDI should be allowed only if the benefits outweigh the costs.

A) communist
B) socialist
C) pragmatic nationalism
D) radical
E) liberal

Question 45

________________ are three main benefits of inward FDI for a host country.

A) The resource-transfer effect, the employment effect, and the balance-of-payments effect
B) The capital-transfer effect, the technology effect, and the currency exchange effect
C) The cultural awareness effect, the technology effect, and the balance-of-payments effect
D) The resource-transfer effect, the technology effect, and the currency exchange effect
E) Balance of payments effect, currency exchange effect, and the technology effect

Question 46

Dunning argues that combining location specific assets or resource endowments and the firm's own unique capabilities often requires:

A) mergers
B) FDI
C) local production
D) home country training
E) cross cultural literacy

Question 47

The MNE is seen as an instrument for dispersing the production of goods and services to those locations around the globe where they can be produced most efficiently,according to the ________________ view.

A) radical
B) liberal
C) capitalist
D) pragmatic nationalism
E) free market

Question 48

The _______________ view of FDI traces its roots to Marxist political and economic theory.

A) radical
B) free market
C) pragmatic nationalism
D) conservative
E) social democratic

Question 49

Silicon Valley has a ______________ in the generation of knowledge related to the computer and semi-conductor industries,when looked at by Dunning's theory.

A) demographic specific advantage
B) trade specific advantage
C) location specific advantage
D) null advantage
E) critical mass advantage

Question 50

The beneficial effects of FDI may be reduced if most management and highly skilled jobs in the subsidiaries of foreign firms are reserved for _______________ nationals.

A) host-country
B) third-country
C) home-country
D) local
E) expatriate

Question 51

When two or more enterprises encounter each other in different regional markets,national markets,or industries,_____________ arises.

A) a monopoly
B) an oligopoly
C) a cartel
D) multipoint competition
E) international competition

Question 52

Firms undertake FDI at _____________ is Raymond Vernon's view of foreign direct investment.

A) unpredictable stages in the life cycle of a product they have pioneered
B) late stages in their corporate histories
C) early stages in their corporate histories
D) particular stages in the life cycle of a product they have pioneered
E) early stages in the product life cycle of a product another company has pioneered

Question 53

The eclectic paradigm has been championed by the British economist ______________.

A) John Dunning
B) Edward Luty
C) William Spencer
D) Andrew Ferguson
E) Francis Knockerbocker

Question 54

The ________________ view is that FDI has both benefits and costs.

A) radical
B) conservative
C) free market
D) pragmatic nationalist
E) liberal

Question 55

Which of the following is NOT a reason that the radical position of MNEs was in retreat by the end of the 1980s?

A) The strong economic performance of those developing countries that embraced capitalism rather than radical ideology
B) The collapse of communisms in Eastern Europe
C) The rise of democracy in the Western countries
D) A growing belief by many radical countries that FDI can be an important source of technology and job and can stimulate economic growth
E) The move to deregulate Western economies

Question 56

A country's _______________ tracks both its payments to and its receipts from other countries.

A) pluses and minuses account
B) debits and credits account
C) checks and balances account
D) balance-of-payments account
E) current account

Question 57

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

A) geographic specific preferences
B) unique geographic advantages
C) locale-specific preferences
D) location-specific advantages
E) factor endowment advantages

Question 58

Radical writers believe that _____________ extract profits from the host country and take them to their home country,giving nothing of value to the host country in exchange.

A) FDI
B) MNEs
C) SNEs
D) PNCs
E) MNCs

Question 59

The _______________ view argues that international production should be distributed among countries according to the theory of comparative advantage.

A) conservative
B) pragmatic nationalism
C) free market
D) radical
E) liberal

Question 60

Camelot Baby Carriages decided to enter the European market.Sam's Strollers followed to ensure that Camelot would not gain competitive advantage in Europe that could lead to the same thing occurring in Asia.Sam's then decides to enter the Australian market,and Camelot follows.This is an example of:

A) monopoint competition.
B) multipoint competition.
C) lead and follow competition.
D) competition life cycle.
E) oligolopic competition.

Question 61

Canada continues to restrict FDI into _________________.

A) railroads
B) nuclear power generation
C) the Alberta tar sands
D) airlines
E) land

Question 62

McDonalds has expanded into foreign markets primarily through

A) franchising.
B) licensing.
C) FDI.
D) exporting.
E) turn-key.

Question 63

Countries have been known to occasionally manipulate _____________ to try to encourage their firms to invest at home.

A) safety regulations
B) tax rules
C) environmental rules
D) the stock market
E) the media

Question 64

______________ is (are)not a common incentive that governments offer foreign firms to invest in their countries.

A) Grants or subsidies
B) Free media advertising
C) Low-interest loans
D) Tax concessions
E) None of these answers is correct

Question 65

Regarding the costs of FDI for the home country,the most important concerns center around:

A) the balance-of-payments and employment effects of outward FDI
B) the technology capture effect and the perceived loss of national sovereignty
C) the resource transfer effect and the inflationary pressures caused by FDI
D) the perceived loss of national sovereignty and inflationary pressures caused by FDI
E) the technology transfer loss and increased competition

Question 66

The members of the Organization for Economic Cooperation and Development include

A) most South American countries, Japan, France, and Germany.
B) most North American countries, Great Britain, France, and Germany.
C) most Asian countries, the United States, Canada, and Mexico.
D) most European countries, the United States, Canada, Japan, and South Korea.
E) most European countries, the United States, Canada, Japan, and China.

Question 67

Because they _______________,the product life-cycle theory and Knickerbocker's theory of FDI tend to be less useful from a business perspective.

A) are descriptive rather than analytical
B) have not stood the test of time
C) are not widely known
D) have not been empirically validated
E) have not been widely used

Question 68

International trade theory tells us that home country concerns about the negative economic effects of offshore production:

A) are typically right on
B) may be misplaced
C) are typically irrelevant
D) are typically negligible
E) should be addressed

Question 69

If a Canadian corporation decides to create FDI in Mexico because the new plant site has lower costs,this can cause Canada to:

A) lose out on taxes because Mexico will receive them for the new site.
B) deteriorate its trade position.
C) have an increase in its unemployment rate.
D) have a decrease in its unemployment rate.
E) experience increased corporate profits.

Question 70

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

Question 71

The establishment of Japanese automakers' branch plants in Canada does not help the U.S.in terms of its _________________.

A) current account
B) international accounts
C) national account
D) foreign currency account
E) balance-of-payments accounts

Question 72

Which is a possible adverse effect of FDI on a host country's balance-of-payments position?

A) When a foreign subsidiary exports a substantial number of its outputs abroad.
B) When a foreign subsidiary gets a substantial number of its inputs from its host-country.
C) When most of the foreign subsidiary's management team is from the home country.
D) Set against the initial capital inflow that comes with FDI must be the subsequent outflow of income as the foreign subsidiary repatriates earnings to its parent company.
E) the increased competition weakens domestic companies reducing local production and increasing imports

Question 73

It is increasingly common for governments to:

A) offer incentives to firms that invest in their countries
B) penalize firms that invest in their countries
C) offer incentives to firms from developed countries to invest in their countries, but not to firm from developing countries
D) offer incentives to firms from developing countries to invest in their countries, but not to firms from developed countries
E) restrict the use of incentives to foreign investors to level the playing field for their local industries

Question 74

How can FDI help a country achieve a current account surplus?

A) If the FDI is a substitute for exports of goods or services, the effect can be to improve the current account of the host country's balance of payments.
B) When the MNE uses a foreign subsidiary to import goods and services to other countries.
C) When the MNE uses a foreign subsidiary to export goods and services to other countries.
D) If the FDI is a substitute for imports of goods or services, the effect can be positive on the current account of the home-country's balance of payments.
E) When the MNE transfers monies to finance the FDI

Question 75

Host governments use a range of controls to restrict FDI.The two most common are

A) monetary restraints and performance requirements.
B) technology transfer restraints and employment restraints.
C) ownership restraints and performance requirements.
D) employment restraints and repatriation limitations.
E) foreign corporate tax levies and ownership restraints.

Question 76

As a further incentive to encourage domestic firms to undertake FDI,many countries have eliminated double taxation of foreign income.Double taxation of foreign income refers to:

A) taxation of income in both the host country and the home country
B) double taxation of income in the host country
C) double taxation of income in the home country
D) taxation that must be paid to both the host country and the IMF
E) double sales taxes payable on exporting and importing

Question 77

Although it normally involves much longer-term commitments,franchising is essentially the service industry version of:

A) exporting
B) licensing
C) FDI
D) turnkey projects
E) business system transfer

Question 78

Three main costs of inward FDI concern host countries.These are:

A) the employment effect, the perceived loss of national sovereignty and autonomy, and the resource transfer effect
B) the possible adverse effects of FDI on competition with the host country, the resource transfer effect, and the perceived loss of national sovereignty and autonomy
C) the resource transfer effect, the employment effect, and the possible adverse effects of FDI on competition within the host country
D) the possible adverse effects of FDI on competition within the host country, adverse effects on the balance of payments, and the perceived loss of national sovereignty and autonomy
E) Loss of national sovereignty, increased materialism, increased income and wealth inequities

Question 79

Many investor nations now have government backed insurance programs to cover major types of foreign investment risk.The types of risks insurable through these programs include all of the following except:

A) the risk of expropriation
B) war losses
C) the inability to transfer profits back home
D) strategic business blunders
E) currency restrictions

Question 80

A Paris-based intergovernmental organization of "wealthy" nations whose purpose is to provide its 34 member states with a forum in which governments can compare their experiences,discuss the problems they share,and seek solutions that can be applied within their own national contexts is referred to as

A) Council for Economic Strength.
B) Federation of Emerging Nations.
C) Organization for Economic Cooperation and Development.
D) Organization for Economic Strength and Global Leadership.
E) Organization for Economic Equality and Development.