Deck 6: Investing Abroad Directly

Question 1

The resource-based view argues that recent expansion of FDI is indicative of generally friendlier policies, norms, and values associated with FDI.

Answer 1

False

Question 2

Between the 1950s and the early 1980s, the radical view was influential throughout Africa, Asia, Eastern Europe, and Latin America.

Answer 2

True

Question 3

FDI may be viewed as a reflection of firm motivation to extend firm-specific capabilities abroad and their responses to overcome imperfections and failures.

Answer 3

True

Question 4

The share of FDI-based value added of foreign affiliates of MNEs in world GDP rose from 7% in 1990 to 11% in 2010.

Question 5

The benefit of ownership lies in the combination of equity ownership rights and management control rights.

Question 6

If firms from country A undertake $20 billion of FDI in firms from country B in year 1, and another $20 billion in year 2, then we can say that in each of those two years, B receives annual FDI outflows of $20 billion, and A generates annual FDI inflows of $20 billion.

Question 7

A type of FDI in which the firm moves upstream or downstream in different value chain stages in a host country is called horizontal FDI.

Question 8

FPI refers to investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets.

Question 9

Capital outflow can help improve a host country s balance of payments.

Question 10

An external market transaction in which firms buy and sell technology is called market imperfections.

Question 11

Vertical FDI refers to producing the same products or offering the same services in a host country as firms do at home.

Question 12

Markets governed by rules, regulation, and norms are designed to reduce costs associated with doing business.

Question 13

FDI stock refers to accumulation of inbound FDI in a country or outbound FDI from a country.

Question 14

Most countries practice a totally free market view.

Question 15

Brazil, China, Hungary, India, Ireland, and Russia have adopted more FDI-friendly policies.

Question 16

International transactions are generally as effective as those governing domestic transactions.

Question 17

Internalization refers to the replacement of cross-border markets (such as importing and exporting) with one firm (the MNE) locating in two or more countries.

Question 18

FDI creates jobs both directly and indirectly.

Question 19

Implicit knowledge can be written down and transferred without losing much of its richness.

Question 20

A political view that is hostile to FDI is called horizontal FDI.

Question 21

If BMW chooses to have some FDI in China, instead of selling its technology to a Chinese firm for a fee, this is an example of:

A) Ownership advantage
B) Location advantage
C) Internalization
D) Market imperfection

Question 22

MNEs possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI refer to:

A) Location advantage
B) Ownership advantage
C) Internalization
D) Market imperfections

Question 23

Between the 1950s and the early 1980s, the radical view was influential throughout:

A) Europe
B) Asia
C) Central and Latin America
D) Eastern Europe, Africa, Asia, and Latin America

Question 24

When one firm enters a foreign country through FDI, its rivals are likely to follow by undertaking additional FDI in a host country to:

A) Create knowledge spillover
B) Discover a new market for its goods
C) Overcome and combat market failure through FDI
D) Acquire location advantages or neutralize the first mover s location advantages

Question 25

Since the 1980s, countries such as Brazil, China, Hungary, India, Ireland, and Russia have adopted:

A) Economic patriotism
B) FDI-friendly policies
C) A radical view
D) A strictly free market view

Question 26

State-owned investment funds have brought much needed cash to desperate Western firms, but some host countries have raised concerns about them.

Question 27

When entering foreign markets, basic entry choices include:

A) Exporting and importing
B) Exporting and FDI
C) Exporting and licensing
D) Exporting, licensing, and FDI

Question 28

Which of the following statements is correct?

A) FDI stock is a total accumulation of inbound FDI in a country or outbound FDI from a country.
B) MNEs are firms that engage in FDI.
C) FDI refers to directly investing in activities that control and manage value creation in other countries.
D) All of these answers are correct.

Question 29

The amount of FDI moving in a given period in a certain direction is:

A) FDI flow
B) Upstream vertical FDI
C) Horizontal FDI
D) FDI stock

Question 30

One of the benefits of FDI to a host country is repatriated earnings from profits.

Question 31

Which of the following statements is correct?

A) Capital inflow can help improve a host country s balance of payments.
B) Technology, especially more advanced technology from abroad, can create technology spillovers.
C) FDI creates jobs directly and indirectly.
D) All of these answers are correct.

Question 32

Non-MNE firms can also do business abroad by:

A) Licensing and franchising
B) Outsourcing and engaging in FDI
C) Exporting and importing
D) All of these answers

Question 33

A political view that approves FDI only when its benefit outweighs its costs is known as:

A) A free market view
B) The radical view
C) Pragmatic nationalism
D) Economic patriotism

Question 34

The share of FDI-based value added of foreign affiliates of MNEs in world GDP:

A) Declined from 10% in 1990 to 7% in 2010
B) Rose from 7% in 1990 to 11% in 2010
C) Declined from 25% in 1980s to 19% in 2010
D) Remained the same

Question 35

Knowledge that can be written down and transferred without losing much of its richness is known as:

A) Explicit
B) Implicit
C) Valid
D) Legible

Question 36

A type of FDI in which firms move upstream or downstream in different value chain stages in a host county is identified as:

A) horizontal FDI
B) radical FDI
C) vertical FDI
D) FDI flow

Question 37

Most countries practice:

A) Pragmatic nationalism
B) Free market based FDI
C) Government embracing radical view
D) French patriotism

Question 38

____ suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantage by specializing in the production of certain goods or services.

A) The radical view
B) The free market view
C) Pragmatic nationalism
D) Expropriation

Question 39

Agglomeration advantages stem from:

A) Knowledge spillovers among closely located firms that attempt to hire individuals from competitors.
B) Industry demand that creates a skilled labor force whose members may work for different firms without having to move out of the region.
C) Industry demand that facilitates a pool of specialized suppliers and buyers also located in the region.
D) All of these answers

Question 40

Firms prefer FDI to licensing because:

A) FDI reduces dissemination risks.
B) FDI provides tight control over foreign operations.
C) Certain know-how is difficult to convey without FDI.
D) All of these answers

Question 41

What determines the success and failure of FDI around the globe?

Question 42

What are the benefits of FDI to home countries?

A) Repatriated earnings from profits from FDI.
B) Increased exports of components and services to host countries.
C) Learning via FDI from operations abroad.
D) All of these answers

Question 43

Why do firms prefer FDI to licensing?

Question 44

Costs of FDI to home countries primarily center on:

A) Capital loss
B) Job loss
C) Capital and job loss
D) Firm s bankruptcy

Question 45

Explain the location advantages of FDI. Discuss the value of acquiring and neutralizing location advantages with an example that highlights how a location advantage does not necessarily overlap a country-level advantage.

Question 46

Analyze the process of overcoming market failure through FDI.

Question 47

Identify the benefits and costs of FDI to home countries.

Question 48

What is a sovereign wealth fund?

A) A philanthropic organization funded by foreign investors
B) A state-owned investment fund funded by foreign exchange assets
C) An FDI-oriented political action committee
D) An open source licensing agreement

Question 49

The primary costs of FDI to host countries are:

A) Loss of sovereignty and patriotism
B) Adverse effects on competition and exports
C) Capital outflow
D) Loss of sovereignty, adverse effects on competition, and capital outflow

Question 50

Differentiate the primary characteristics of horizontal and vertical FDI.