A Japanese car manufacturer acquires an Italian producer of car tires. This is an example of a(n) _____.
A.
acquisition
B.
absolute advantage
C.
greenfield investment
D.
merger
Developing nations currently account for _____ of FDI in the form of cross-border mergers and
acquisitions.
A.
well over half
B.
about one-third or less
C.
about 50 percent
D.
the largest share
A Japanese car manufacturer acquires an Italian producer of car tires. This is an example of a(n) _____.
A.
acquisition
B.
absolute advantage
C.
greenfield investment
D.
merger
Developing nations currently account for _____ of FDI in the form of cross-border mergers and
acquisitions.
A.
well over half
B.
about one-third or less
C.
about 50 percent
D.
the largest share
The largest source country for FDI has been _____.
A.
China
B.
Japan
C.
the United States
D.
the Netherlands
The majority of cross-border investment in the developed world is in the form of _____.
A.
hostile takeovers
B.
greenfield investments
C.
competitive investments
D.
mergers and acquisitions
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:
A.
have a low value-to-weight ratio.
B.
have a high value-to-weight ratio.
C.
can be produced only in one region.
D.
require locally-sourced raw materials.
_____ seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for
entering foreign markets.
A.
Knickerbocker's theory
B.
Internalization theory
C.
The noninterventionist theory
D.
The eclectic paradigm
_____ gives a firm tight control over manufacturing, marketing, and strategy in a foreign country that
may be required to maximize its profitability.
A.
Licensing
B.
Internalization
C.
Foreign direct investment
D.
A merger
C
_____ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries.
A.
Internalization theory
B.
The eclectic paradigm
C.
The noninterventionist theory
D.
Knickerbocker's theory
_____ traces its roots to Marxist political and economic theory.
A.
The radical view
B.
Pragmatic nationalism
C.
The free market view
D.
The noninterventionist principle
_____ argues that FDI is a benefit to both the source country and to the host country.
A.
Pragmatic nationalism
B.
The free market view
C.
The noninterventionist principle
D.
The radical view
The pragmatic nationalist view highlights _____ of FDI.
A.
only the benefits
B.
only the costs
C.
both the benefits and costs
D.
neither the benefits nor the costs
An aspect of _____ is the tendency to aggressively court FDI believed to be in the national interest by,
for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
A.
the radical view
B.
the noninterventionist principle
C.
the free market view
D.
pragmatic nationalism
Recent years have seen a _____ in the number of countries that adhere to a radical ideology regarding
FDI.
A.
marked decline
B.
slight decline
C.
marked increase
Host country citizens that are employed by an MNE following an FDI are an example of a(n) _____ of
FDI.
A.
internality
B.
direct effect
C.
externality
D.
indirect effect
...
A country's _____ keep track of both its payments to and its receipts from other countries.
A.
current accounts
B.
offshore accounts
C.
balance-of-payments accounts
D.
currency accounts
BC
If the FDI is a substitute for imports of goods or services, the effect can be to improve the _____ of the
host country's balance of payments.
A.
offshore account
B.
currency account
C.
market imperfections
D.
current account
D
FDI can benefit the home country's _____ if the foreign subsidiary creates demands for home-country
exports of capital equipment, intermediate goods, complementary products, and the like.
A.
balance of payments
B.
oligopolistic industry
C.
current accounts
D.
licensing endeavors
The two most common methods of restricting inward FDI are ownership restraints and _____.
A.
resource endowments
B.
performance requirements
C.
national sovereignty
D.
incentives
As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is
between FDI and _____.
A.
subsidies
B.
incentives
C.
licensing
D.
resource endowments
The _____ and Knickerbocker's theory of FDI tend to be less useful from a business perspective because
they are descriptive rather than analytical.
A.
noninterventionist theory
B.
internalization theory
C.
eclectic paradigm
D.
product life-cycle theory
FDI occurs when a firm:
A.
ships its products from one country to another.
B.
invests directly in facilities to produce a product in a foreign country.
C.
invests in the shares of another company operating in the same country.
D.
grants permission to another company in a different country to use its brand name.
Which of the following is an example of a greenfield investment?
A.
A Chinese sugar maker setting up a sugar crushing facility in Cuba.
B.
A Serbian automobile company purchasing a Croatian component manufacturer.
C.
A Finnish mobile phone manufacturer expanding its production facility in Finland.
D.
An Indian oil exploration company acquiring an oil refining company.
Which of the following statements is true about the growth of foreign direct investment in the world
economy over the last few decades?
A.
FDI has experienced a slower growth than world output.
B.
FDI has accelerated faster than world trade growth.
C.
FDI has remained the same over the past few decades.
D.
FDI has dropped dramatically.
B
Which of the following factors has had a positive effect on the volume of foreign trade investments?
A.
Emerging social democracies
B.
Fluctuating current rates
C.
Aging demographics
D.
World economy globalization
Which of the following factors has made the United States an attractive target for foreign direct
investment?
A.
Its unstable economy
B.
Its unfavorable political environment
C.
Its wealthy domestic markets
D.
Its closed society
The stock of FDI is the:
A.
amount of FDI undertaken over a given period of time.
B.
total accumulated value of foreign-owned assets at a given time.
C.
flow of FDI out of a country.
D.
amount of foreign direct investment made by domestic companies over a given period of time.
The _____ of FDI refers to the amount of FDI undertaken over a year.
A.
stock
B.
net value
C.
accumulated value
D.
flow
Which of the following is the prime reason why Africa has attracted FDI in recent years?
A.
Growth of the services sector
B.
Complete deregulation of markets
C.
Wave of privatization
D.
Raw material availability
Which of the following summarizes the total amount of resources invested in factories, stores, office
buildings, and the like?
A.
Gross capital index
B.
Gross fixed capital formation
C.
Gross domestic product
D.
Gross national product
Which of the following primarily explains why developing nations are characterized by lower percentage
of cross-border mergers and acquisitions compared to developed nations?
A.
Fewer target firms to acquire in developing nations
B.
Fierce opposition to mergers and acquisitions in developed nations
C.
Unwillingness of foreign companies to invest in developing nations
D.
Presence of import quotas in developing nations
A
When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than
undertake greenfield investments?
A.
Greenfield investments are characterized by reduced management control.
B.
Mergers and acquisitions are preferred because most greenfield investments fail.
C.
It is easier and less risky for a firm to build strategic assets than acquire similar assets.
D.
Mergers and acquisitions are quicker to execute than greenfield investments.
A French wind power company gives an Indonesian company the right to produce and sell wind turbines
in return for a royalty fee on every unit sold. Which business practice is this an example of?
A.
Acquisition
B.
Licensing
C.
Exporting
D.
Greenfield investment
Which of the following specifically reduces the viability of an exporting strategy specifically for products
with low value-to-weight ratios?
A.
Foreign exchange controls
B.
Trade barriers
C.
Transportation costs
D.
Output quality
Which of the following is a way in which governments increase the attractiveness of FDI and licensing
relative to exporting?
A.
By implementing import quotas
B.
By imposing FDI limits in industries
C.
By increasing tax rates
D.
By limiting free flow of capital
Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing
as a strategy for entering foreign markets.
A.
Internalization theory
B.
Product life-cycle theory
C.
Perfect markets theory
D.
Random walk theory
In which of the following situations does the internalization theory recommend FDI as opposed to
licensing?
A.
When the firm has know-how that can be adequately protected by a licensing contract
B.
When the firm produces products that have a low value-to-weight ratio
C.
When a firm's skills and know-how are amenable to licensing
D.
When the firm needs tight control over a foreign entity
Which of the following best describes an industry composed of a limited number of large firms?
A.
An oligopoly
B.
A monopoly
C.
An oligarchy
D.
A perfectly competitive market
A
Which of the following is a direct consequence of the interdependence between firms in an oligopoly?
A.
Increased regulation
B.
Increased consumer welfare
C.
Imitative behavior
D.
Longer product life-cycles
Which of the following observations concerning Knickerbocker's theory is true?
A.
It does not explain imitative FDI behavior by firms in oligopolistic industries.
B.
Economists favor this theory as an explanation for FDI compared to the internalization theory.
C.
It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
D.
It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or
license.
_____ arises when two or more enterprises encounter each other in different regional markets, national
markets, or industries.
A.
Horizontal integration
B.
Multipoint competition
C.
An oligopoly
D.
Vertical integration
According to Knickerbocker's theory:
A.
when a firm has valuable know-how that cannot be adequately protected by a licensing contract it
engages in FDI.
B.
when a firm's skills and know-how are not amenable to licensing, it usually prefers the FDI route.
C.
by placing tariffs on imported goods, governments indirectly increase the cost of exporting relative to
foreign direct investment and licensing.
D.
when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the
industry will be compelled to make similar investments.
What is the term that describes when two or more enterprises encounter each other in different
regional markets, national markets, or industries?
A.
Multipoint competition
B.
Monopoly
C.
Location-specific competition
D.
Oligopoly
Which of the following is a major drawback of using Knickerbocker's theory in explaining FDI?
A.
It ignores the fact that firms invest in a foreign country when demand in that country will support local
production.
B.
It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or
license.
C.
It fails to identify when it is profitable to invest abroad.
D.
It ignores the fact that licensing as an entry strategy has its limitations.
The _____ suggests that a firm will establish production facilities where foreign assets or resource
endowments that are important to the firm are located.
A.
product life-cycle theory
B.
internalization theory
C.
multipoint competition theory
D.
eclectic paradigm
Advantages that arise from using resource endowments or assets that are tied to a particular place and
that a firm finds valuable to combine with its own unique assets are known as:
A.
location-specific advantages.
B.
capital-specific advantages.
C.
absolute advantages.
D.
production factor advantages.
According to the _____ view of FDI, MNEs extract profits from the host country and take them to their
home country, giving nothing of value to the host country in exchange.
A.
imperialist
B.
conservative
C.
free market
D.
radical
Which view of FDI traces its roots to classical economics and the international trade theories of Adam
Smith and David Ricardo?
A.
Imperialist
B.
Conservative
C.
Free market
D.
Radical
Which political view allows FDI so long as the benefits outweigh the costs?
A.
The traditional view
B.
The pragmatic nationalist view
C.
The radical view
D.
The free market view
A country rejects FDI proposals in certain industries. It does so because the tangible advantages of such
investments are lesser than potential costs like loss of employment and reduction of overall well-being.
However, it aggressively pursues inviting foreign investments in sectors like infrastructure, education,
and healthcare because of the benefits that accrue with them. Which political view of FDI is discussed in
this example?
A.
The pure market view
B.
The free market view
C.
The radical view
D.
The pragmatic nationalist view
Why is it said that not all the new jobs created by FDI represent net additions in employment?
A.
Because of the uncertainty of the overall economic environment
B.
Because most of the job creation is indirect in nature
C.
Because jobs created by an investment may be offset by the jobs lost in domestic companies
D.
Because the unemployment rate more or less remains constant over the short-term
When a company brings capital and/or technology to a host country, the host country benefits from the:
A.
political effect of FDI.
B.
resource-transfer effect of FDI.
C.
balance-of-payments effect of FDI.
D.
bandwagon effect of FDI.
A country's _____ keeps track of its payments to and its receipts from other countries.
A.
federal payments ledgers
B.
concurrent accounts
C.
checks-and-balances accounts
D.
balance-of-payments accounts
Which of the following arises when a country is importing more goods and services than it is exporting?
A.
Current account surplus
B.
Trade deficit
C.
Trade surplus
D.
Trade balance
Which of the following arises when a country is exporting more goods and services than it is importing?
A.
Current account surplus
B.
Trade deficit
C.
Trade surplus
D.
Trade balance
In which of the following situations would FDI improve the current account of the host country's balance
of payments?
A.
If the foreign subsidiary imports a substantial number of its inputs from abroad
B.
If the FDI reduces existing employment opportunities
C.
If the FDI is a substitute for imports of goods or services
D.
If the FDI results in substitution of products produced domestically
In which way can the source country's balance of payments benefit from an FDI made in a foreign
country?
A.
From cash outflow during the initial investment to finance the FDI
B.
If the purpose of the foreign investment is to serve the home market from a low-cost production
location
C.
From the inward flow of foreign earnings
D.
If FDI is a substitute for direct exports
C
How is the adverse effect of the balance of payments for the home country due to an FDI usually offset?
A.
By increased imports to the home country as a result of the FDI
B.
By the subsequent inflow of foreign earnings
C.
By substituting direct exports made earlier from the home country
D.
By further investments usually made to expand foreign operations
FDI undertaken to serve the home market is known as:
A.
outsourcing.
B.
FDI substitution.
C.
offshore production.
D.
home market FDI.
How can FDI undertaken to serve the home market stimulate economic growth in the home country?
A.
By freeing home-country resources to concentrate on activities where the home country has a
comparative advantage
B.
By importing more goods and services than it is exporting
C.
By circumventing trade barriers that may have prevented direct exports in the past
D.
By reducing demand for home-country exports of capital equipment, intermediate goods, and
complementary products
What is double taxation in the context of FDI?
A.
Taxation at twice the normal rate for foreign companies
B.
Taxing the producers as well as suppliers
C.
Taxation of income in both home and host country
D.
Taxation of both income as well as dividends paid
Which of the following is a home-country policy aimed at limiting outward FDI flow?
A.
Taxing domestic companies' foreign earnings at a higher rate than their domestic earnings
B.
Implementation of government-backed insurance programs to cover major types of foreign investment
risk
C.
Eliminating double taxation of foreign income
D.
Persuading host countries to relax their restrictions on inbound FDI
Licensing would be a good option for firms in which of the following industries?
A.
High-technology industries in which protecting firm-specific expertise is of paramount importance.
B.
Global oligopolies, in which competitive interdependence requires that multinational firms maintain
tight control over foreign operations.
C.
Industries in which intense cost pressures require that multinational firms maintain tight control over
foreign operations.
D.
In fragmented, low-technology industries in which globally dispersed manufacturing is not an option.
_____ is essentially the service-industry version of licensing, although it normally involves much longer
term commitments.
A.
Franchising
B.
Subsidizing
C.
Greenfield investment
D.
Patenting
Which branch of economic theory seeks to explain why firms often prefer FDI over licensing as a strategy
for entering foreign markets?
A.
Internalization theory
B.
Product life-cycle theory
C.
Multipoint competition theory
D.
Strategic behavior theory
_____ occurs when a domestic firm legally allows a foreign firm the right to produce its product, to use
its production processes, or to use its brand name or trademark.
A.
Licensing
B.
Acquisition
C.
Internalization
D.
Merger
_____ arises when two or more enterprises encounter each other in different regional markets, national
markets, or industries.
A.
Comparative advantage
B.
Multipoint competition
C.
Competitive advantage
_____ arise(s) from using resource endowments or assets that are tied to a particular foreign location
and that a firm finds valuable to combine with its own unique assets.
A.
Multipoint competition
B.
The eclectic paradigm
C.
Location-specific advantages
D.
Outflow of FDI
The free market view argues that international production should be distributed among countries
according to the _____.
A.
eclectic paradigm
B.
theory of competitive advantage
C.
new trade theory
D.
theory of comparative advantage
According to pragmatic nationalist view, FDI should be allowed so long as:
A.
the benefits outweigh the costs.
B.
they do not aggressively court domestic firms.
C.
the costs outweigh the benefits.
D.
the MNE does not seek tax breaks or grants.
From the perspective of a firm negotiating the terms of an investment with a host government, the
firm's bargaining power is high when the:
A.
firm has a short time in which to complete the negotiations.
B.
host government places a high value on what the firm has to offer.
C.
number of comparable alternatives open to the firm is low.
D.
host government does not places a high value on the firm's offering.
B
Through their choice of policies, home countries can both encourage and restrict FDI by local firms.
Policies designed to encourage outward FDI include which of the following?
A.
Tax rebates
B.
Political pressure
C.
Expropriation
D.
Domestic risk insurance
