Deck 7: Foreign Direct Investment

Question 1

Rationalized production is a system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest.

Answer 1

True

Question 2

Foreign direct investment is the purchase of physical assets or a significant amount of the ownership (stock)of a company in another country to gain a measure of management control.

Answer 2

True

Question 3

Factors of production include things such as labour,financial capital,capital equipment,and land or natural resources.

Answer 3

True

Question 4

Building a subsidiary abroad from the ground up is called a greenfield investment.

Question 5

Portfolio investment is the purchase of physical assets or a significant amount of ownership of a company in another country to gain a degree of management control.

Question 6

In foreign direct investment,100 percent ownership of a company does not guarantee its complete control.

Question 7

Many early trade theories were created at a time when most factors of production either could not be moved or could not be moved easily across national borders.

Question 8

Canada is considered to be one of the most restrictive countries for foreign direct investment (FDI).

Question 9

Developed countries are the prime destination for foreign direct investment because cross-border mergers and acquisitions are concentrated in developed countries.

Question 10

Trade barriers and specialized knowledge are both examples of market imperfections.

Question 11

At the core of foreign direct investment are international flows of capital.

Question 12

According to the eclectic theory,an internalization advantage is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.

Question 13

The Mexican maquiladora project was built upon the success of the border project between Germany and Poland.

Question 14

Two main reasons for foreign direct investment flows are globalization and diversity.

Question 15

The eclectic theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for investment.

Question 16

A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill.

Question 17

Today,all factors of production are internationally mobile.

Question 18

European Union nations,the United States,and Japan account for the vast majority of world foreign direct investment inflows.

Question 19

According to the eclectic theory,an ownership advantage is the advantage of locating a particular economic activity in a specific location because of the characteristics of that location.

Question 20

A market imperfection that can encourage foreign direct investment is the possibility that a company will create a future competitor by charging another company for access to its knowledge.

Question 21

A current account deficit occurs when a country exports more goods and services and receives more income from abroad than it imports and pays abroad.

Question 22

The purchase of physical assets or a significant amount of ownership (stock)of a company in another country to gain a measure of management control is called ________.

A)foreign direct investment
B)portfolio investment
C)ownership control
D)vertical integration

Question 23

The soaring cost of developing subsequent stages of technology has led multinationals to engage in cross-border alliances and acquisitions.

Question 24

The goods account records export of services.

Question 25

In industries with a limited number of large firms,foreign direct investment decisions frequently resemble a "follow the leader" scenario.

Question 26

When companies realized they could produce in the most efficient and productive locations in the world and simply export to markets worldwide,a new surge of foreign direct investment flowed into ________.

A)newly industrialized nations and emerging markets
B)highly developed economies
C)home country markets
D)totalitarian and theocratic nations only

Question 27

Companies seek cross-border mergers and acquisitions for each of the following reasons EXCEPT to ________.

A)get a foothold in new geographic markets
B)increase a firm's global competitiveness
C)fill in gaps in companies' product lines in a global industry
D)free up company budgets for increased R & D

Question 28

All of the following factors of production are internationally mobile EXCEPT ________.

A)labour
B)financial capital
C)capital equipment
D)land

Question 29

The current account includes income earned on Canadian assets held abroad

Question 30

The two main reasons countries intervene in foreign direct investment flows are to control the balance of payments and to obtain resources and benefits.

Question 31

A country's balance of payments is a national accounting system that records all payments to entities in other countries and all receipts coming into the nation.

Question 32

Which of the following statements is NOT true?

A)Entrepreneurs and small businesses play a minimal role in expanding foreign direct investment flows.
B)Increasing globalization is causing a growing number of international companies from emerging markets to undertake foreign direct investment.
C)The desire to increase a firm's global competitiveness drives many cross-border mergers and acquisitions.
D)Companies may pursue mergers and acquisitions to fill gaps in their product lines.

Question 33

Which of the following are main drivers of foreign direct investment?

A)Diversity and telecommunications
B)Telecommunications and transportation
C)Globalization and mergers and acquisitions (M&A)
D)Diversity and globalization

Question 34

Canada's share of global inward FDI has _______________ .

A)increased considerably in recent years
B)improved because of mergers and acquisitions
C)fallen because of restrictive policies
D)fallen because of labour market conflicts

Question 35

One reason a home country may discourage foreign direct investment outflows is to protect its "sunset" industries.

Question 36

The practice of "following clients" can be expected in industries where many component parts are obtained from suppliers with whom a manufacturer has a close working relationship.

Question 37

Which of the following refers to investments that do NOT involve obtaining a measure of control in a company?

A)Foreign direct investment
B)Portfolio investment
C)Mergers
D)Acquisitions

Question 38

Which of the following created renewed determination to further reduce barriers to trade?

A)Consumer demand
B)Advancements in telecommunications
C)Portfolio investment trends
D)Uruguay Round of trade negotiations

Question 39

Which of the following is NOT one of the four main theories that attempts to explain why companies engage in foreign direct investment?

A)International product life cycle theory
B)Market imperfections theory
C)Eclectic theory
D)Mercantilism

Question 40

One method used by host countries to restrict incoming foreign direct investment is ownership restrictions.

Question 41

A subsidiary built abroad from the ground up is called a(n)________.

A)portfolio investment
B)distributive channel
C)acquisition
D)greenfield investment

Question 42

The requirement that a sufficient portion of a product's content must originate within a certain market to escape tariff charges is an example of a ________.

A)trade marker
B)market imperfection
C)tariff quota
D)maturing product

Question 43

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

A)A business acquisition in Southeast Asia's former agricultural region
B)The construction of an entirely new manufacturing subsidiary overseas
C)A merger between a US and non-US company
D)The purchase of an existing business that is still in its infancy

Question 44

According to the international product life cycle theory,in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?

A)Standardized product stage
B)Maturing product stage
C)Declining product stage
D)New product stage

Question 45

The appeal of purchasing existing facilities is reduced by the potential for each of the following EXCEPT ________.

A)obsolete equipment
B)unsuitable location
C)poor relations with workers
D)low wages for local workers

Question 46

Canadian government exercises a high degree of control over the broadcasting sector because it ___________________.

A)wants to control the technology in broadcasting
B)is considered critical to national security
C)wants to control the type of programming offered
D)wants to provide better working conditions to Canadians

Question 47

________ is the advantage of conducting a particular economic activity in a specific area because of the characteristics of that place.

A)industry advantage
B)production advantage
C)comparative advantage
D)location advantage

Question 48

Which of the following is the extension of company activities into stages of production that provide a firm's inputs or absorb its outputs?

A)Horizontal integration
B)Vertical integration
C)Market penetration
D)Collaborative diversification

Question 49

The ________ theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for an investment.

A)rational production
B)international product life cycle
C)market imperfections
D)eclectic

Question 50

According to the international product life cycle theory,in which stage of a product's life cycle does a company directly invest in production facilities in countries where demand is great enough to warrant such facilities?

A)New product stage
B)Maturing product stage
C)Standardized product stage
D)Declining product stage

Question 51

A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a(n)________.

A)perfect market
B)eclectic market
C)imperfect market
D)greenfield market

Question 52

The ________ theory states that a firm tries to establish a dominant presence in an industry by undertaking foreign direct investment.

A)market power
B)eclectic
C)market imperfections
D)trade barriers

Question 53

Which of the following statements is true regarding complete ownership of a business in another country?

A)It guarantees profits.
B)It does not guarantee decision-making responsibility.
C)It does not guarantee control.
D)It guarantees government support.

Question 54

In the ________ product stage of the international product life cycle theory,increased competition pressures a company to produce in low-cost developing nations.

A)new
B)maturing
C)standardized
D)declining

Question 55

A company that integrates backward or forward can achieve market power through ________.

A)ownership advantages
B)horizontal integration
C)vertical integration
D)internalization

Question 56

The theory that a company will begin by exporting its products and later undertake foreign direct investment is referred to as the _______________ theory.

A)eclectic life cycle
B)market improvements life cycle
C)international product life cycle
D)market power life cycle

Question 57

According to the eclectic theory,each of the following advantages must be present for a company to undertake foreign direct investment EXCEPT ________.

A)location
B)ownership
C)internationalization
D)localization

Question 58

________ is the advantage that arises when a company exhibits superior technical knowledge.

A)ownership advantage
B)internalization advantage
C)location advantage
D)market power advantage

Question 59

The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be,a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency reducing aspect.

A)market power
B)perfect market
C)international product life cycle
D)market imperfections

Question 60

One way a company can achieve market power is through ________.

A)ownership advantages
B)horizontal integration
C)vertical integration
D)balancing payments

Question 61

Which of the following is LEAST likely to motivate foreign direct investment?

A)Customer knowledge
B)Following clients
C)Following rivals
D)Minimizing competition

Question 62

When a Canadian company buys 40 percent of the publicly traded stock of a French company on France's stock market,Canada's balance of payments records the transaction as an ________.

A)inflow of capital recorded with a plus sign
B)inflow of capital recorded with a minus sign
C)outflow of capital recorded with a plus sign
D)outflow of capital recorded with a minus sign

Question 63

Exports and imports of computer software,electronic components,and apparel would be reflected in the ________ account within the current account.

A)services
B)capital
C)merchandise
D)corporate

Question 64

Governments intervene to keep their balance of payments under control for all of the following reasons EXCEPT ____________.

A)to impose local content requirements.
B)to create exports generated by the new production operation.
C)to boost the balance to payments from an initial FDI
D)to transfer assets back to the home country

Question 65

A potential problem with rationalized production is that ________.

A)it is highly inefficient
B)a work stoppage in one country can bring the entire production process to a standstill
C)unionization in one country affects operations in other countries
D)parts come in from multiple countries for assembly

Question 66

If a Canadian company receives payment for consulting services provided to a company in another country,the receipt is recorded in the _____________.

A)capital account
B)current account
C)income account
D)balance of payments account

Question 67

The practice of "following clients" can be expected in industries having ________.

A)few suppliers
B)many suppliers
C)supply clusters
D)suppliers and manufacturers with close working relationships

Question 68

Which of the following records transactions involving the export of services?

A)Income receipts account
B)Capital account
C)Income payments account
D)Current account

Question 69

All of the following are benefits of acquisitions EXCEPT the ________.

A)acquisition of goodwill the company has built up over the years
B)acquisition of the brand recognition of the existing company
C)ability to use alternate methods to finance the purchase of the company
D)acquisition of a plant or physical facility with obsolete equipment

Question 70

If a Japanese citizen invests in the Australian stock market,the transaction would show up on the capital account of ________.

A)Japan
B)Australia
C)neither Japan nor Australia
D)both Japan and Australia

Question 71

The automobile industry uses a ________ method of production.

A)fractional
B)rationalized
C)single-country
D)component

Question 72

A system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest is called ________ production.

A)rationalized
B)greenfield
C)centralized
D)maquiladora

Question 73

A nation's balance of payments consists of two components: the ________ account and the ________ account.

A)current;past-due
B)capital;fixed
C)current;capital
D)merchandise;services

Question 74

Exports and imports of tangible goods are included in the ________ account within the current account.

A)exports
B)capital
C)merchandise
D)corporate

Question 75

Which of the following is a national account that records transactions involving the purchase or sale of assets?

A)Current account
B)Merchandise account
C)Service account
D)Capital account

Question 76

The ________ represents a country's national accounting system that records all payments to entities in other countries and all receipts coming into the nation.

A)balance of payments
B)credit account
C)capital account
D)current account

Question 77

To capitalize on buyer perceptions of high quality,a watchmaker might produce in which of the following countries?

A)Argentina
B)Thailand
C)South Africa
D)Switzerland

Question 78

When a Canadian subsidiary in another country remits profits back to its parent in Canada,the receipt of profits is recorded in the ________.

A)income receipts account and given a plus sign
B)income receipts account and given a minus sign
C)income payments account and given a plus sign
D)income payments account and given a minus sign

Question 79

Which of the following occurs when a country exports more goods and services and receives more income from abroad than it imports?

A)Current account deficit
B)Capital account surplus
C)Current account surplus
D)Capital account deficit

Question 80

Exports and imports of tourism and business consulting are included in which of the following?

A)Services within the current account
B)Capital account
C)Merchandise within the current account
D)Corporate account