Deck 2: International Trade and Foreign Direct Investment

Question 1

Foreign direct investment refers to the investment in a company's stocks, bonds, or assets, but not for the purpose of controlling or directing the firm's operations or management.

Answer 1

False

Question 2

A main differentiator of political systems is each system's philosophy on the rights of the individual and the group as well as the role of government.

Answer 2

True

Question 3

Totalitarianism occurs when an authoritarian leadership is motivated by a distinct ideology.

Answer 3

True

Question 4

The foreign direct investment made by a company is primarily a part of its long-term strategy.

Question 5

The economic theory of mercantilism stated that a country's wealth was determined by the amount of its gold and silver holdings.

Question 6

Global businesses can afford to ignore the political and legal climate in countries in which they currently operate.

Question 7

Trade surplus refers to a situation where the value of imports is greater than the value of exports.

Question 8

Political stability is a key part of government efforts to attract foreign investment to their country.

Question 9

The new nations of the 1500s promoted exports by imposing restrictions on imports.

Question 10

The British colonial empire sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India.

Question 11

The Internet has lessened the ability of the countries to regulate or strong-arm companies into abiding by their rules and regulations.

Question 12

The classical international trade theories are from the perspective of a country.

Question 13

The modern international trade theories explain trade from a firm, rather than a country, perspective.

Question 14

Most countries maintain a balance between anarchism and totalitarianism and the balance is often a reflection of the country's history, culture, and religion.

Question 15

Free trade only benefits select industries, at the expense of both consumers and other companies, within and outside of the industry.

Question 16

Capitalism is an economic system in which the means of production are owned and controlled privately.

Question 17

Countries such as China still favor exports and discourage imports through a form of neo-mercantilism.

Question 18

The product life cycle theory has been better able to explain current trade patterns where innovation and manufacturing occur around the world.

Question 19

Trade deficit refers to a situation where the value of exports is greater than the value of imports.

Question 20

Companies make portfolio investment by participating in a joint venture with a foreign company.

Question 21

Governments want to be able to control and regulate the flow of FDI, so that local political and economic concerns are addressed.

Question 22

The _____ theory suggests that companies first produce for domestic consumption.

A) product life cycle
B) comparative advantage
C) country similarity
D) absolute advantage
E) factor proportions

Question 23

Trade deficit refers to:

A) a situation where the value of imports is greater than the value of exports.
B) the ability of a country to produce a good more efficiently than another nation.
C) a situation where exports are promoted by imposing restrictions on imports
D) a situation where trade policies benefit select industries.
E) a situation where the value of exports is greater than the value of imports.

Question 24

Few governments still actively limit and control foreign investment.

Question 25

Trade surplus refers to:

A) the ability of a country to produce a good more efficiently than another nation.
B) a situation where trade policies benefit select industries.
C) a situation where exports are promoted by imposing restrictions on imports.
D) a situation where the value of imports is greater than the value of exports.
E) a situation where the value of exports is greater than the value of imports.

Question 26

Swedish economist Steffan Linder's theory proposed that:

A) consumers in countries that are in the same or similar stage of development would have similar preferences.
B) a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
C) countries would produce and export goods that required resources that were in great supply.
D) firms must develop competitive advantages to counter global competition in their industries.

Question 27

Purchasing goods and services or deciding to invest in a local market depends on a business's needs and overall strategy.

Question 28

The strategy to promote exports by imposing restrictions on imports is called:

A) capitalism.
B) protectionism.
C) liberalization.
D) mercantilism.
E) free trade.

Question 29

The _____ states that a country's wealth was determined by the amount of its gold and silver holdings.

A) Leontief Paradox
B) absolute advantage theory
C) comparative advantage theory
D) mercantilism theory
E) country similarity theory

Question 30

_____ has become an optimal location for labor-intensive industries due to the availability of cheap, large pools of labor.

A) The United States of America
B) Sweden
C) India
D) The United Kingdom
E) Japan

Question 31

_____ occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that product better and more efficiently than it does other goods.

A) Comparative advantage
B) Differential advantage
C) Absolute advantage
D) Global strategic rivalry
E) Country similarity

Question 32

Neo-mercantilism refers to an economic policy in which:

A) a country trades in manufactured goods with countries having similar per capita incomes.
B) a country focuses on producing a good more efficiently than another nation.
C) countries produce and export goods that required resources that were in great supply.
D) countries promote a combination of protectionist policies and restrictions and domestic-industry subsidies.
E) countries import goods that required resources that were in short supply.

Question 33

The _____ refers to the land and water trade routes that covered more than 4,000 miles and connected the Mediterranean with Asia.

A) Silk Road
B) Salt Road
C) Amber Road
D) Grand Trunk Road
E) Siberian Route

Question 34

Factor proportions theory states that:

A) firms must develop competitive advantages to counter global competition in their industries.
B) production of the new product will occur completely in the home country of its innovation.
C) most trade in manufactured goods will be between countries with similar per capita incomes.
D) countries would produce and export goods that required resources that were in great supply.
E) a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.

Question 35

Companies involved in Brownfield foreign direct investment build new facilities right from scratch usually in an area where no previous facilities existed.

Question 36

The _____ stated that a nation's wealth should not be judged by how much gold and silver it had but rather by the living standards of its people.

A) factor proportions theory
B) mercantilism theory
C) absolute advantage theory
D) comparative advantage theory
E) Leontief Paradox

Question 37

Which of the following refers to a political philosophy which contends that every aspect of an individual's life should be controlled and dictated by a strong central government?

A) Totalitarianism
B) Pluralism
C) Anarchism
D) Capitalism
E) Democracy

Question 38

The critical ways that firms can obtain a sustainable competitive advantage are/is called the _____ for that industry.

A) comparative advantages
B) factors of production
C) service factors
D) brand equity
E) barriers to entry

Question 39

_____ theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry.

A) Global strategic rivalry
B) Absolute advantage
C) Product life cycle
D) Factor proportions
E) Country similarity

Question 40

In the early 1950s, the United States was abundant in capital and, therefore, should have been exporting more capital-intensive goods. However, contrary to the factor proportions theory, the United States was importing more capital-intensive goods and exporting labor-intensive goods. This is an example of:

A) the product life cycle.
B) mercantilism.
C) the Leontief Paradox.
D) protectionism.
E) neo-mercantilism.

Question 41

Planned economy refers to an economic system in which:

A) a regional economic bloc directs and controls the economy, including the means and decision making for production.
B) the government or state directs and controls the economy, including the means and decision making for production.
C) the domestic, privately owned companies direct and control the economy, including the means and decision making for production.
D) multinational companies direct and control the economy, including the means and decision making for production.
E) the dominant ethnic group controls and directs the economy, including the means and the decision making for production.

Question 42

Pluralism refers to a political philosophy which asserts that:

A) monarchy should replace all forms of elected government.
B) both public and private groups are important in a well-functioning political system.
C) governments should centralize all control in the hands of one strong leader or a small group of leaders, who have full authority.
D) individuals should control political activities and public government is both unnecessary and unwanted.
E) that every aspect of an individual's life should be controlled and dictated by a strong central government.

Question 43

Inward FDI for a country:

A) are investments made by companies from a foreign country into the companies of that country.
B) are investments made by companies from that country into foreign companies in other countries.
C) refers to financial help to developing countries in environmental causes.
D) refers to financial help to boost the agricultural production of a country.
E) refers to financial and technical help to charitable organizations.

Question 44

Democracy refers to a form of government:

A) that allows the dominance of one dominant ethnic group over the others.
B) that derives its power from the people.
C) which contends that every aspect of an individual's life should be controlled and dictated by a strong, central government.
D) which contends that individuals controlling political activities and public government is both unnecessary and unwanted.
E) which asserts that monarchy should replace all forms of elected government.

Question 45

The theocratic law is based on:

A) religious guidelines.
B) traditions and precedence, wherein judges interpret the law and judicial rulings can set precedent.
C) the customs and traditions followed by the dominant cultural group of a particular country.
D) the official dictates of the government ruling a country.
E) the customs and traditions followed by the weakest cultural group of a particular country.

Question 46

Dumping refers to a situation where:

A) governments limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports.
B) governments provide financing to domestic companies to promote exports.
C) companies sell products below market price often in order to win market share and weaken a competitor.
D) countries designate certain geographic areas as free trade zones.
E) countries continue to require that a certain percentage of a product or an item be manufactured or "assembled" locally.

Question 47

Specific tariffs are:

A) fixed taxes that are imposed on the customers irrespective of the value of the product or the service.
B) taxes that are levied as a fixed charge, regardless of the value of the product or service.
C) tariffs that are calculated as a percentage of the value of the product or service.
D) taxes that are levied on the exporters depending on the value of the products or the service being provided.
E) taxes that are levied on the producers of specific goods as decided by the ministry in charge of the finances of a country.

Question 48

Capitalism is an economic system in which the:

A) government does not allow the import or the export of goods.
B) means of production are owned and controlled privately.
C) government or state directs and controls the economy, including the means and decision making for production.
D) government allows the export of goods but does not allow the import of goods.
E) government allows the import of goods but does not allow the export of goods.

Question 49

_____ refers to the steps taken by governments to limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports.

A) Export financing
B) Subsidy
C) Currency control
D) Free trade zone
E) Import quota

Question 50

Direct democracy is a form of government in which:

A) the government derives its power from the people of the country by means of a petition referendum.
B) the government derives its power from the people of the country by means of elected representatives of the people.
C) the government derives its power from the dominant ethnic group of the country.
D) a single party with an ideology controls and directs the functioning of the government.
E) the government derives its power from the cultures and traditions of the largest religious community of the country.

Question 51

Identify the political philosophy which contends that individuals should control political activities and public government is both unnecessary and unwanted.

A) Capitalism
B) Neo-mercantilism
C) Pluralism
D) Anarchism
E) Totalitarianism

Question 52

Local content requirements refer to a situation where:

A) governments limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports.
B) governments provide financing to local companies to promote exports.
C) companies sell a product below market price often in order to win market share and weaken a competitor.
D) countries designate certain geographic areas as free trade zones.
E) countries require that a certain percentage of a product or an item be manufactured or "assembled" locally.

Question 53

Foreign direct investment refers to:

A) the investment in foreign assets with the intent to control and manage them.
B) the investment in a company's stocks without the intent to control and manage them.
C) offering financial help to developing countries in environmental causes.
D) offering financial help to boost the agricultural production of a country.
E) offering financial and technical help to charitable organizations.

Question 54

Which of the following refers to a form of government payment to a producer?

A) Export financing
B) Subsidy
C) Currency control
D) VER
E) Import quota

Question 55

Outward FDI for a country:

A) are investments made by companies from a foreign country into the companies of that country.
B) are investments made by companies from that country into foreign companies in other countries.
C) refers to financial help to developing countries in environmental causes.
D) refers to financial help to boost the agricultural production of a country.
E) refers to financial and technical help to charitable organizations.

Question 56

Portfolio investment refers to:

A) the investment in foreign assets with the intent to control and manage them.
B) the investment in a company's stocks without the intent to control or manage them.
C) the acquisition of foreign assets with the intent to control and manage them.
D) participating in a joint venture with a foreign company.
E) offering financial and technical help to charitable organizations.

Question 57

Which of the following is true about Sharia?

A) It is the least widely accepted religious law system.
B) It prohibits charging interest on money and other common investment activities.
C) It is a commercial, rather than a moral, legal system.
D) It prohibits banks from engaging in sale-buyback or leaseback of an asset.
E) It does not permit banks to charge large up-front fees.

Question 58

Common law refers to a legal system based on:

A) religious guidelines.
B) the official dictates of the government ruling a country.
C) a detailed set of laws that constitute a code on how the law is applied to the facts.
D) traditions and precedence, wherein judges interpret the law and judicial rulings can set precedent.
E) the customs and traditions followed by the dominant cultural group of a particular country.

Question 59

Ad valorem tariffs are:

A) fixed taxes that are levied on the customers regardless of the value of the product or the service.
B) taxes that are levied as a fixed charge, regardless of the value of the product or service.
C) tariffs that are calculated as a percentage of the value of the product or service.
D) taxes that are levied on the exporters depending on the value of the products or the service being provided.
E) taxes that are levied on the producers of specific goods as decided by the ministry in charge of the finances of a country.

Question 60

Civil law refers to a legal system based on:

A) the official dictates of the government ruling a country.
B) traditions and precedence, wherein judges interpret the law and judicial rulings can set precedent.
C) the customs and traditions followed by the dominant cultural group of a particular country.
D) religious guidelines.
E) a detailed set of laws that constitute a code on how the law is applied to the facts.

Question 61

What are the considerations that influence a company when it is trying to make a direct investment in a country?

Question 62

A Japanese retailer builds a store in India to sell badminton rackets. This would serve as an example of:

A) backward vertical FDI.
B) brownfield FDI.
C) forward vertical FDI.
D) horizontal FDI.
E) portfolio investment.

Question 63

A brownfield investment:

A) is when a company purchases or leases existing production facilities to launch a new production activity.
B) is a strategy where a commercial site used for commercial space is used to set up a steel mill or oil refinery.
C) generally involves setting up a manufacturing unit in a forested area.
D) leads to the creation of jobs in the country where the investment is made.
E) escapes the problem of outdated equipment, entrenched processes, and cultural differences as faced by greenfield investments.

Question 64

Adam Smith's new trade theory called _____ focused on the ability of a country to produce a good more efficiently than another nation.

Question 65

What is the impact of the protectionist policies of a government on the consumer?

Question 66

A greenfield FDI is when:

A) a company or government entity purchases or leases existing production facilities to launch a new production activity.
B) multinational companies make financial contributions to charitable organizations in a foreign country.
C) a company invests in the agricultural sector of a particular country.
D) multinational corporations enter into developing countries to build new factories or stores.
E) a company makes financial contributions to environmental causes in a particular country.

Question 67

Firms invest in production or plant facilities in a country in order to supply raw materials, parts, or finished products to their home country. These firms are engaged in:

A) backward vertical FDI.
B) forward vertical FDI.
C) horizontal FDI.
D) inward FDI.
E) portfolio investment.

Question 68

How do governments intervene in trade?

Question 69

A brownfield FDI is when:

A) multinational companies make financial contributions to charitable organizations in a foreign country.
B) a company invests in the agricultural sector of a particular country.
C) multinational corporations enter into developing countries to build new factories or stores.
D) firms create new long-term jobs in the foreign country by hiring new employees.
E) a company or government entity purchases or leases existing production facilities to launch a new production activity.

Question 70

Some host countries encourage that ownership be maintained by a person of local origin to:

A) encourage unlimited foreign direct investment in their country.
B) discourage foreign countries from attempting to politically subvert the local population.
C) execute a hostile takeover of the foreign company in the future.
D) keep the control of local markets or industries in their citizens' hands.
E) ensure that the ruling party of that country makes financial gains in the process.

Question 71

What is the country similarity theory as proposed by the Swedish economist Steffan Linder?

Question 72

Investors who are interested in portfolio investment are looking to:

A) financially stabilize economically unstable markets.
B) capturing and manipulating the foreign markets in which they are investing.
C) diversify investment risk through multiple markets.
D) financially control the companies in which the investments have been made.
E) make financial contributions to the government treasury.

Question 73

What is the Heckscher-Ohlin theory?

Question 74

Firms invest in production or plant facilities in a country and then sell the goods in that particular local or regional market. These firms are engaged in:

A) backward vertical FDI.
B) forward vertical FDI.
C) horizontal FDI.
D) inward FDI.
E) portfolio investment.

Question 75

With regard to financial incentives, home-country governments offer businesses:

A) free manpower to attract companies to invest.
B) a combination of insurance, loans, and tax breaks in an effort to promote their companies' overseas investments.
C) as the investing companies, a monopolistic share of the market in order to attract them.
D) heavy taxes imposed on domestic companies to attract foreign companies.
E) tariff-free entry to the investing companies.

Question 76

What is the Leontief Paradox?

Question 77

What are "barriers to entry" and what are the barriers to entry that corporations might seek to optimize?

Question 78

Why do governments intervene in trade?

Question 79

How do you differentiate between foreign direct investment (FDI) and portfolio investment?

Question 80

What is the product life cycle theory?