Question 1

Which of the following statements is true regarding foreign direct investment?

Accepted Answer

A)  The flow of FDI refers to the total accumulated value of foreign-owned assets at a given time.
B)  FDI has grown more rapidly than world trade and world output.
C)  The general shift toward democratic political institutions has discouraged FDI.
D)  Generally, free market economies oppose FDI.
E)  The globalization of the world economy is having a negative effect on the volume of FDI.F) B) and C)
G) B) and E) B

Question 2

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the:

Accepted Answer

A)  comparative advantage theory.
B)  distribution theory.
C)  new trade theory.
D)  internalization theory.
E)  licensing theory.F) A) and D)
G) B) and D)

Question 3

Direct effects of FDI on employment in the host country arise when a foreign MNE:

Accepted Answer

A)  brings in managers trained in the latest management techniques from the home country.
B)  creates jobs because of increased local spending by employees of the MNE.
C)  employs a number of host country citizens.
D)  causes local suppliers to hire more people.
E)  creates jobs in the supporting industries.F) B) and D)
G) All of the above

Question 4

When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.

Accepted Answer

A) True 
 B)False

Question 5

What is franchising? With the help of a suitable example, explain how franchising can be a profitable alternative to FDI.

Accepted Answer

Franchising is essentially the service-i...

Question 6

Mergers and acquisitions differ from greenfield investments in that:

Accepted Answer

A)  greenfield investments are quicker to execute than mergers and acquisitions.
B)  greenfield investments are undertaken to take advantage of valuable strategic assets, such as brand loyalty and trademarks or patents, of a foreign competitor.
C)  the majority of FDI flows into developed nations are in the form of greenfield investments rather than mergers and acquisitions.
D)  the majority of FDI flows into developing nations are in the form of cross-border mergers and acquisitions.
E)  the percentage of mergers and acquisitions is lower than greenfield investments in developing nations.F) A) and B)
G) None of the above

Question 7

Firms for which licensing is not a good option include those in:

Accepted Answer

A)  low-technology industries.
B)  global oligopolies.
C)  industries characterized by low cost pressures.
D)  industries where transportation costs are high.
E)  industries which need to have low control over foreign operations.F) D) and E)
G) A) and B)

Question 8

According to the free market view, how does FDI increase the efficiency of the world economy through MNEs?

Accepted Answer

A)  The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.
B)  MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale.
C)  When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate.
D)  A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country.
E)  MNEs increase the efficiency of the world economy by increasing the flow of capital in the world market.F) C) and D)
G) A) and B)

Question 9

FDI has grown significantly slower than world trade and world output.

Accepted Answer

A) True 
 B)False

Question 10

The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.

Accepted Answer

A) True 
 B)False

Question 11

According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

Accepted Answer

A) True 
 B)False

Question 12

A critical competitive feature of an oligopoly is independence of the major players.

Accepted Answer

A) True 
 B)False  False

Question 13

If one firm in an oligopoly cuts prices, then most likely, its competitors will:

Accepted Answer

A)  make profits.
B)  also respond with similar price cuts.
C)  correspondingly raise prices.
D)  capture additional market share.
E)  not be impacted by the price cuts.F) A) and D)
G) D) and E)

Question 14

Which of the following is true regarding the inflow of FDI?

Accepted Answer

A)  Even though developing nations still account for the largest share of FDI inflows, FDI into developed nations has increased markedly.
B)  Africa has historically been the largest recipient of inward FDI.
C)  The United Kingdom and France have historically been the smallest recipients of inward FDI.
D)  There has been an increase in the importance of China as a recipient of FDI.
E)  Latin America is the least important region in the developing world for FDI inflows.F) A) and E)
G) C) and E) D

Question 15

According to internalization theory, one of the drawbacks of licensing is that:

Accepted Answer

A)  it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development.
B)  it 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)  when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.
D)  its use is restricted by the government through the imposition of tariffs and quotas.
E)  it is less cost-effective than FDI.F) A) and E)
G) B) and D)

Question 16

Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?

Accepted Answer

A)  It drives down prices and increases the economic welfare of consumers.
B)  It raises unemployment levels.
C)  It causes firms to fight for scarce capital investments.
D)  It leads to an oligopolistic market and unfair pricing.
E)  It leads to decreased productivity, product and process innovations, and lesser economic growth.F) D) and E)
G) B) and C)

Question 17

Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's:

Accepted Answer

A)  free trade agreements.
B)  inward FDI.
C)  sovereignty.
D)  balance-of-payments position.
E)  gold reserves.F) A) and B)
G) C) and D)

Question 18

Which of the following is true regarding the pragmatic nationalist view of FDI?

Accepted Answer

A)  One aspect of pragmatic nationalism 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.
B)  The pragmatic nationalist view states that FDI always has a positive effect on the balance of payments which arises from the outflow of a foreign subsidiary's earnings and from the import of inputs from abroad.
C)  According to the pragmatic nationalist view, international production should be distributed among countries based on the theory of comparative advantage.
D)  According to the pragmatic nationalist view, FDI should not be allowed to enter into a country because its costs always outweigh its benefits.
E)  The pragmatic nationalist view of FDI accepts the Marxist theory, and suggests that FDI by MNEs is an instrument of imperialism.F) C) and D)
G) B) and C)

Question 19

The cement market in Erbia is dominated by four firms. These firms control 85 percent of selling and buying of the domestic market. Which of the following terms explains the market structure of the cement industry in Erbia?

Accepted Answer

A)  Perfect competition
B)  Monopoly
C)  Oligopoly
D)  Dual monopoly
E)  MonopsonyF) B) and C)
G) A) and E)

Question 20

The globalization of the world economy is having a negative effect on the volume of FDI.

Accepted Answer

A) True 
 B)False

Exam 8: Foreign Direct Investment

Which of the following statements is true regarding foreign direct investment?

Correct AnswerverifiedB

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the:

Correct AnswerverifiedShow Answer

Direct effects of FDI on employment in the host country arise when a foreign MNE:

Correct AnswerverifiedShow Answer

When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.

Correct AnswerverifiedShow Answer

What is franchising? With the help of a suitable example, explain how franchising can be a profitable alternative to FDI.

Correct AnswerverifiedFranchising is essentially the service-i...View AnswerShow Answer

Mergers and acquisitions differ from greenfield investments in that:

Correct AnswerverifiedShow Answer

Firms for which licensing is not a good option include those in:

Correct AnswerverifiedShow Answer

According to the free market view, how does FDI increase the efficiency of the world economy through MNEs?

Correct AnswerverifiedShow Answer

FDI has grown significantly slower than world trade and world output.

Correct AnswerverifiedShow Answer

The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.

Correct AnswerverifiedShow Answer

According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

Correct AnswerverifiedShow Answer

A critical competitive feature of an oligopoly is independence of the major players.

Correct AnswerverifiedFalse

If one firm in an oligopoly cuts prices, then most likely, its competitors will:

Correct AnswerverifiedShow Answer

Which of the following is true regarding the inflow of FDI?

Correct AnswerverifiedD

According to internalization theory, one of the drawbacks of licensing is that:

Correct AnswerverifiedShow Answer

Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?

Correct AnswerverifiedShow Answer

Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's:

Correct AnswerverifiedShow Answer

Which of the following is true regarding the pragmatic nationalist view of FDI?

Correct AnswerverifiedShow Answer

The cement market in Erbia is dominated by four firms. These firms control 85 percent of selling and buying of the domestic market. Which of the following terms explains the market structure of the cement industry in Erbia?

Correct AnswerverifiedShow Answer

The globalization of the world economy is having a negative effect on the volume of FDI.

Correct AnswerverifiedShow Answer

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B

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Franchising is essentially the service-i...
View Answer

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False

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D

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