Question 1

A critical competitive feature of an oligopoly is the:

Accepted Answer

A)  lack of interaction among the major players.
B)  presence of a domestic market which is open for foreign firms.
C)  desire of all the major players to avoid the phenomenon of diminishing returns.
D)  interdependence of the major players.
E)  lack of imitative behavior among the major players.F) C) and E)
G) A) and B)

Question 2

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?

Accepted Answer

A)  Outsourcing
B)  Exporting
C)  Licensing
D)  Diverging
E)  HedgingF) A) and C)
G) All of the above

Question 3

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) A) and E)
G) C) and D)

Question 4

Performance requirements are controls over the behavior of the MNE's local subsidiary.

Accepted Answer

A) True 
 B)False

Question 5

The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time.

Accepted Answer

A) True 
 B)False

Question 6

Describe the role of the WTO in the liberalization of FDI.

Accepted Answer

Until the 1990s, there was no consistent...

Question 7

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

Accepted Answer

A)  balance-of-payments and employment effects of outward FDI.
B)  technology capture effect and the perceived loss of national sovereignty.
C)  reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D)  import of substantial input from abroad and being held to "economic ransom."
E)  exposure to foreign markets and the decreased costs of production.F) B) and C)
G) A) and E)

Question 8

Which of the following concepts helps explain how location factors affect the direction of FDI?

Accepted Answer

A)  The eclectic paradigm
B)  The protectionism argument
C)  The product life-cycle theory
D)  The new trade theory
E)  The infant industry argumentF) None of the above
G) B) and C)

Question 9

Which of the following is a major type of foreign investment risk that is insurable through government-backed programs?

Accepted Answer

A)  Lack of funds
B)  Risk of transaction loss
C)  Poor strategic tie-ups
D)  Risks of expropriation
E)  Losses due to natural calamitiesF) A) and B)
G) D) and E)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Governments impose quotas to limit:

Accepted Answer

A)  FDI.
B)  importing.
C)  franchising.
D)  outsourcing.
E)  licensing.F) A) and E)
G) None of the above

Question 12

Which of the following is a reason for the decline in the popularity of the radical view of FDI?

Accepted Answer

A)  The rise of communism in Eastern Europe
B)  The generally steady economic growth of those countries that embraced the radical position
C)  The growing belief in many countries that FDI leads to loss of jobs
D)  The strong economic performance of those developing countries that embraced capitalism
E)  The collapse of capitalism in the newly independent nations of AsiaF) A) and B)
G) B) and C)

Question 13

Which of the following is a home-country policy for limiting outward FDI?

Accepted Answer

A)  Eliminating double taxation of foreign income
B)  Manipulating tax rules to encourage the firms to invest at home
C)  Withdrawing government-backed insurance programs provided to local investors
D)  Reducing interest rates earned on domestic investments
E)  Prohibiting organizations from entering into a cartelF) A) and C)
G) C) and D)

Question 14

An acquisition does not result in a net increase in the number of players in a market.

Accepted Answer

A) True 
 B)False

Question 15

What are the different types of industries for which licensing is not a good option?

Accepted Answer

Firms for which licensing is not a good ...

Question 16

As an incentive to encourage domestic firms to undertake FDI, many countries have:

Accepted Answer

A)  eliminated double taxation of foreign income.
B)  started imposing local content requirements.
C)  imposed higher import tariffs.
D)  abolished the use of custom duties.
E)  eliminated subsidies.F) B) and D)
G) A) and B)

Question 17

Which of the following is most likely to involve establishment of a new operation in a foreign country?

Accepted Answer

A)  Consolidation
B)  Greenfield investment
C)  Acquisition
D)  Licensing agreement
E)  Mass customizationF) None of the above
G) D) and E)

Question 18

Offshore production refers to FDI undertaken:

Accepted Answer

A)  to focus on extractive industries, such as oil and gas.
B)  to serve the home market.
C)  in shipping industries.
D)  to decrease the prices of products in the host countries.
E)  to capture tax benefits in the host country.F) A) and B)
G) C) and D)

Question 19

The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:

Accepted Answer

A)  pragmatic nationalism.
B)  the radical view.
C)  nationalism.
D)  imitative theory.
E)  eclectic paradigm.F) A) and B)
G) C) and E)

Question 20

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...

Exam 8: Foreign Direct Investment

The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time.

Correct AnswerverifiedShow Answer

An acquisition does not result in a net increase in the number of players in a market.

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

Performance requirements are controls over the behavior of the MNE's local subsidiary.

Correct AnswerverifiedShow Answer

A critical competitive feature of an oligopoly is the:

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The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:

Correct AnswerverifiedShow Answer

Describe the role of the WTO in the liberalization of FDI.

Correct AnswerverifiedUntil the 1990s, there was no consistent...View AnswerShow Answer

Which of the following concepts helps explain how location factors affect the direction of FDI?

Correct AnswerverifiedShow Answer

Offshore production refers to FDI undertaken:

Correct AnswerverifiedShow Answer

As an incentive to encourage domestic firms to undertake FDI, many countries have:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The difference between Internalization theory and imitative theory is that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a major type of foreign investment risk that is insurable through government-backed programs?

Correct AnswerverifiedShow Answer

Governments impose quotas to limit:

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Which of the following is most likely to involve establishment of a new operation in a foreign country?

Correct AnswerverifiedShow Answer

What are the different types of industries for which licensing is not a good option?

Correct AnswerverifiedFirms for which licensing is not a good ...View AnswerShow Answer

Which of the following is a reason for the decline in the popularity of the radical view of FDI?

Correct AnswerverifiedShow Answer

Which of the following is a home-country policy for limiting outward FDI?

Correct AnswerverifiedShow Answer

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FDI is expensive because a firm must bea...
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Until the 1990s, there was no consistent...
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Firms for which licensing is not a good ...
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