Question 1

Why has FDI grown more rapidly than world trade?

Accepted Answer

A)   Decline in trade barriers has made the fear of protectionist pressures redundant.
B)   Executives of business firms see FDI as a way of circumventing future trade barriers.
C)   There has been a general shift toward radical and totalitarian political institutions.
D)   Privatization has made developing nations less attractive for multinational enterprises.
E)   There has been a general shift toward centrally planned command economies.F) C) and E)
G) C) and D)

Question 2

Historically,most FDI has been directed at the _____ nations of the world.

Accepted Answer

A)   underdeveloped
B)   developing
C)   developed
D)   emerging
E)   least developedF) None of the above
G) D) and E)

Question 3

Offshore production refers to FDI undertaken to serve the host market.

Accepted Answer

A) True 
 B)False  False

Question 4

According to the radical view of FDI,multinational enterprises (MNEs) that already exist in a country:

Accepted Answer

A)   should be immediately nationalized.
B)   should be made to pay higher taxes.
C)   should be converted in to publicly traded companies.
D)   should be banned from obtaining finance from the financial institutions in the host country.
E)   should be immediately privatized.F) A) and D)
G) A) and C)

Question 5

According to the _____,FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.

Accepted Answer

A)   eclectic paradigm theory
B)   free market view
C)   pragmatic nationalist view
D)   radical view
E)   internalization theoryF) A) and C)
G) A) and D)

Question 6

A(n) _____ arises when two or more enterprises encounter each other in different regional markets,national markets,or industries.

Accepted Answer

A)   monopoly
B)   monopsony
C)   cartel
D)   multipoint competition
E)   oligopsonyF) A) and B)
G) A) and C)

Question 7

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 reservesF) B) and E)
G) A) and E) D

Question 8

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 theoryF) A) and D)
G) D) and E)

Question 9

In the context of the internalization theory,explain why licensing may not be an attractive option.

Accepted Answer

According to internalization theory,lice...

Question 10

Despite the move toward a free market stance in recent years,many countries still have a rather pragmatic stance toward FDI.

Accepted Answer

A) True 
 B)False  True

Question 11

The most important concerns regarding the costs of FDI for the home-country center on:

Accepted Answer

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 reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D)   the import of substantial input from abroad and being held to "economic ransom."
E)   the exposure to foreign markets and the decreased costs of production.F) B) and D)
G) None of the above

Question 12

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

Accepted Answer

A)   Outsourcing
B)   Licensing
C)   Franchising
D)   Exporting
E)   DiversifyingF) C) and D)
G) A) and B)

Question 13

In the case of developing nations,about _____ of FDI is in the form of cross-border mergers and acquisitions.

Accepted Answer

A)   three-fourth
B)   one-third
C)   one-half
D)   two-third
E)   three-fifthF) A) and D)
G) A) and E)

Question 14

World trade has been growing twice as fast as the growth in the volume of FDI worldwide.

Accepted Answer

A) True 
 B)False

Question 15

The difference between Internalization theory and imitative theory is that:

Accepted Answer

A)   internalization theory does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.
B)   imitative theory addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
C)   most economists favor imitative theory as an explanation for FDI.
D)   no important aspect of FDI is explained by imitative theory.
E)   internalization theory addresses the issue of efficiency of FDI over exporting or licensing.F) C) and D)
G) A) and B)

Question 16

Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Despite its advantages,FDI has been described as an "expensive" and "risky" international growth strategy.Other things being equal,why is FDI expensive and risky when compared to licensing and exporting?

Accepted Answer

FDI is expensive because a firm must bea...

Question 20

A firm that does not want to bear the costs of establishing production facilities in a foreign country should avoid:

Accepted Answer

A)   exporting.
B)   FDI.
C)   licensing.
D)   franchising.
E)   outsourcing.F) All of the above
G) B) and E)

Exam 8: Foreign Direct Investment

Why has FDI grown more rapidly than world trade?

Correct AnswerverifiedShow Answer

Historically,most FDI has been directed at the _____ nations of the world.

Correct AnswerverifiedShow Answer

Offshore production refers to FDI undertaken to serve the host market.

Correct AnswerverifiedFalse

According to the radical view of FDI,multinational enterprises (MNEs) that already exist in a country:

Correct AnswerverifiedShow Answer

According to the _____,FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.

Correct AnswerverifiedShow Answer

A(n) _____ arises when two or more enterprises encounter each other in different regional markets,national markets,or industries.

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 AnswerverifiedD

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

In the context of the internalization theory,explain why licensing may not be an attractive option.

Correct AnswerverifiedAccording to internalization theory,lice...View AnswerShow Answer

Despite the move toward a free market stance in recent years,many countries still have a rather pragmatic stance toward FDI.

Correct AnswerverifiedTrue

The most important concerns regarding the costs of FDI for the home-country center on:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the case of developing nations,about _____ of FDI is in the form of cross-border mergers and acquisitions.

Correct AnswerverifiedShow Answer

World trade has been growing twice as fast as the growth in the volume of FDI worldwide.

Correct AnswerverifiedShow Answer

The difference between Internalization theory and imitative theory is that:

Correct AnswerverifiedShow Answer

Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Despite its advantages,FDI has been described as an "expensive" and "risky" international growth strategy.Other things being equal,why is FDI expensive and risky when compared to licensing and exporting?

Correct AnswerverifiedFDI is expensive because a firm must bea...View AnswerShow Answer

A firm that does not want to bear the costs of establishing production facilities in a foreign country should avoid:

Correct AnswerverifiedShow Answer

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False

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D

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According to internalization theory,lice...
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True

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FDI is expensive because a firm must bea...
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