Question 1

Camille told the management team that investing capital in the Swaziland-based manufacturing plant would not only benefit their company in terms of labor costs but would also promote significant economic development in Swaziland. What type of host-country benefit is Camille referring to?

Accepted Answer

The resource-transfer effect refers to the transfer of technology, skills, and capital from the investing company to the host country. In this case, Camille is referring to the transfer of capital to the Swaziland-based manufacturing plant, which would not only benefit the company in terms of labor costs but would also promote significant economic development in Swaziland.

Question 2

Which situation represents an indirect effect of FDI on employment in a host country?

Accepted Answer

The indirect effect of FDI on employment occurs when the presence of foreign companies increases the overall economic activity, leading to job creation in other sectors, such as increased spending by employees leading to more jobs in home construction.

Question 3

A(n) ________ account is a national account that tracks both payments to and receipts from other countries.

Accepted Answer

The balance-of-payments account is a national account that tracks all economic transactions between residents of a country and the rest of the world, including payments and receipts.

Question 4

________ are a major type of foreign investment risk that is insurable through government-backed programs.

Accepted Answer

Risks of expropriation are a major type of foreign investment risk that can be insured through government-backed programs, as they involve the risk of a government taking over foreign-owned assets.

Question 5

A possible effect of FDI in the form of a greenfield investment in a host country is that it

Accepted Answer

Greenfield investments can increase competition, leading to lower prices and improved economic welfare for consumers.

Question 6

According to the ________ view, a country would be willing to offer subsidies in the form of tax breaks to foreign companies because it believes it to be in the national interest.

Accepted Answer

Pragmatic nationalism suggests that a country may offer subsidies to foreign companies if it believes that the benefits, such as job creation and economic growth, outweigh the costs, thus serving the national interest.

Question 7

If the United States invests in breakfast cereal production facilities in Canada, it would be engaging in

Accepted Answer

Offshore production involves a company setting up production facilities in another country, which is what the United States would be doing by investing in cereal production facilities in Canada.

Question 8

The pragmatic nationalist view regarding FDI is that

Accepted Answer

The pragmatic nationalist view acknowledges that FDI has both benefits and costs, and countries should weigh these to maximize national benefits.

Question 9

MedFirst Instruments, a U.S. company, invests in a manufacturing facility in Mexico. The production from the Mexican facility is used entirely to serve the company's U.S. customers. MedFirst Instruments' activity is called

Accepted Answer

Offshore production refers to a company setting up a facility in another country to produce goods or services, often to take advantage of lower costs, while still serving its home market.

Question 10

When a country in Central America is importing more goods and services than it is exporting, it is incurring a(n)

Accepted Answer

A current account deficit occurs when a country imports more goods and services than it exports, leading to a negative balance in its current account.

Question 11

Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in a host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of

Accepted Answer

Foreign managers bring new skills, knowledge, and management techniques, which are considered resource transfers that can enhance the efficiency and productivity of operations in the host country.

Question 12

The free market view would argue that

Accepted Answer

The free market view suggests that FDI allows for the efficient allocation of resources, benefiting both the source and host countries by promoting economic growth and development.

Question 13

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

Accepted Answer

Many advanced countries have eliminated double taxation of foreign income to encourage domestic firms to undertake foreign direct investment (FDI) by making it more financially attractive.

Question 14

A current account deficit is also known as a(n) ________ deficit.

Accepted Answer

A current account deficit is often referred to as a trade deficit, as it primarily involves the difference between a country's imports and exports of goods and services.

Question 15

Most developing countries do not have access to the technology available in developed nations, but these developing nations need technology to create new jobs and stimulate the economy. Which aspect of inward FDI do these developing nations rely on to have access to needed technology?

Accepted Answer

Developing nations rely on the resource-transfer effects of inward FDI to gain access to technology, as it involves the transfer of technology, skills, and capital from foreign investors to the host country.

Question 16

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

Accepted Answer

Direct effects of FDI on employment occur when a foreign MNE employs host country citizens directly, as opposed to indirect effects like increased local spending or job creation in supporting industries.

Question 17

Kendrik needs to track which goods have been exported by the United States and which goods have been imported. To learn this, he should use the ________ account.

Accepted Answer

The current account records the trade balance, including exports and imports of goods and services, making it the appropriate account for tracking exported and imported goods.

Question 18

A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as

Accepted Answer

Pragmatic nationalism suggests that foreign direct investment should be allowed if the benefits, such as economic growth and job creation, outweigh the costs, such as loss of control over domestic industries.

Question 19

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

Accepted Answer

The primary concerns for the home country regarding FDI costs are the potential negative impacts on the balance of payments and employment, as capital and jobs may move abroad.

Question 20

A current account surplus is favored over a deficit. If a country is faced with a current account deficit it would have to ________ in order to support this situation.

Accepted Answer

A current account deficit means a country is importing more than it is exporting, leading to a net outflow of domestic currency to foreign markets. To balance this, the country may need to sell assets to foreigners to bring foreign currency into the country.

Quiz 8: Foreign Direct Investment