Question 1

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

Accepted Answer

Foreign direct investment can make a positive contribution to a host economy by supplying capital,technology,and management resources that would otherwise not be available and thus boost that country's economic growth rate.Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country,whether those operations are acquired or greenfield developments,thus rendering benefits through a resource transfer effect.

Question 2

The only way in which a current account deficit can be supported in the long run is by:

Accepted Answer

Governments typically prefer to see a current account surplus rather than a deficit.The only way in which a current account deficit can be supported in the long run is by selling assets to foreigners.

Question 3

In Europe in 2006,there was a hostile political reaction to the attempted takeover of Europe's largest steel company,Arcelor,by Mittal Steel,a global company controlled by the Indian entrepreneur Lakshmi Mittal.In mid-2005 China National Offshore Oil Company withdrew a takeover bid for Unocal of the United States after highly negative reactions in Congress about the proposed takeover of a "strategic asset" by a Chinese company.These incidents are evidence to the fact that:

Accepted Answer

There is recent evidence of the beginnings of what might become a shift to a more hostile approach to foreign direct investment.Venezuela and Bolivia have become increasingly hostile to foreign direct investment.In some developed nations,too,there is increasing evidence of hostile reactions to inward FDI.

Question 4

FDI by Japanese auto companies in the United States has resulted in U.S.-owned auto companies losing market share to their Japanese competitors.This forms the basis for critics of employment benefits of FDI to argue that:

Accepted Answer

Cynics argue that not all the "new jobs" created by FDI represent net additions in employment.The jobs created by the Japanese auto FDI in the U.S.have been more than offset by the jobs lost in U.S.- owned auto companies,which have lost market share to their Japanese competitors.As a consequence of such substitution effects,the net number of new jobs created by FDI may not be as great as initially claimed by an MNE.

Question 5

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

Accepted Answer

The effects of FDI on employment are both direct and indirect.Direct effects arise when a foreign MNE employs a number of host-country citizens.

Question 6

_____ accounts are national accounts that track both payments to and receipts from other countries.

Accepted Answer

A country's balance-of-payments accounts track both its payments to and its receipts from other countries.

Question 7

In the balance of payments,which of the following records transactions involving the export and import of goods and services?

Accepted Answer

The current account tracks the export and import of goods and services.Governments normally are concerned when their country is running a deficit on the current account of their balance of payments.

Question 8

Which of the following is a possible adverse effect of FDI on a host country's balance-of-payments position?

Accepted Answer

Set against the initial capital inflow that comes with FDI must be the subsequent outflow of earnings from the foreign subsidiary to its parent company.Such outflows adversely affect balance-of-payments accounts by showing up as capital outflow on them.

Question 9

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

Accepted Answer

A current account deficit,or trade deficit as it is often called,arises when a country is importing more goods and services than it is exporting.Governments typically prefer to see a current account surplus rather than a deficit.

Question 10

When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment,the immediate effect may be to _____ as the multinational tries to restructure the operations of the acquired unit to improve its operating efficiency.

Accepted Answer

When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment,the immediate effect may be to reduce employment as the multinational tries to restructure the operations of the acquired unit to improve its operating efficiency.

Question 11

A study of FDI by the Organization for Economic Cooperation and Development (OECD)found that foreign investors invested significant amounts of capital in R&D in the countries in which they had invested.According to the text,this finding of the study suggests that:

Accepted Answer

Research supports the view that multinational firms often transfer significant technology when they invest in a foreign country.A study of FDI by OECD found that foreign investors invested significant amounts of capital in R&D in host-countries,suggesting that not only were they transferring technology to those countries,but they may also have been upgrading existing technology or creating new technology.

Question 12

One of the indirect effects of FDI on employment in a host country arises when:

Accepted Answer

The effects of FDI on employment are both direct and indirect.Indirect effects arise when jobs are created with local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE.

Question 13

When FDI takes the form of an acquisition of an established enterprise in the host economy,research suggests that once the initial period of restructuring is over,enterprises acquired by foreign firms tend to:

Accepted Answer

When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment,the immediate effect may be to reduce employment as the multinational tries to restructure the operations of the acquired unit to improve its operating efficiency.However,even in such cases,research suggests that once the initial period of restructuring is over,enterprises acquired by foreign firms tend to grow their employment base at a faster rate than domestic rivals.

Question 14

Some host countries fear a loss of economic independence through FDI as key decisions that can affect their economies will be made by foreign parents that have no:

Accepted Answer

Some host governments worry that FDI is accompanied by some loss of economic independence.The concern is that key decisions that can affect the host country's economy will be made by a foreign parent that has no real commitment to the host country,and over which the host country's government has no real control.

Question 15

A potentially major negotiating point between an MNE wishing to undertake FDI and the host government is the issue of:

Accepted Answer

Substitution effects caused by displacement of jobs in domestic firms result in the net number of new jobs created by FDI being significantly lower than what is claimed by the MNE.The issue of the likely net gain in employment may be a major negotiating point between an MNE wishing to undertake FDI and the host government.

Question 16

In the context of costs to a host country from FDI,while _____ should increase competition,it is less clear that this is the case with _____ in the host nation.

Accepted Answer

While FDI in the form of greenfield investments should increase competition,it is less clear that this is the case when the FDI takes the form of acquisition of an established enterprise in the host nation.Because an acquisition does not result in a net increase in the number of players in a market,the effect on competition may be neutral.

Question 17

Set against the initial capital inflow that comes with FDI must be the subsequent outflow of earnings from the foreign subsidiary to its parent company.Such outflows show up as capital outflow on balance-of-payments accounts.Some governments have responded to such outflows by restricting the amount of earnings that can be:

Accepted Answer

Some governments have responded to outflow of earnings from the foreign subsidiary to its parent company which show up as capital outflows on balance-of-payment accounts by restricting the amount of earnings that can be repatriated to a foreign subsidiary's home country.

Question 18

Which of the following sets form three of the main benefits of inward FDI for a host country?

Accepted Answer

The main benefits of inward FDI for a host country arise from resource-transfer effects,employment effects,balance-of-payments effects,and effects on competition and economic growth.

Question 19

How does increased competition through FDI in the form of greenfield investments impact the host country?

Accepted Answer

The efficient functioning of markets depends on an adequate level of competition between producers.When FDI takes the form of a greenfield investment,the result is to establish a new enterprise,increasing the number of players in a market and thus consumer choice.In turn,this can increase the level of competition in a national market,thereby driving down prices and increasing the economic welfare of consumers.

Question 20

According to the text,which of the following is a home-country benefit source to FDI?

Accepted Answer

Benefits from FDI arise when the home-country MNE learns valuable skills from its exposure to foreign markets that can subsequently be transferred back to the home country.Through its exposure to a foreign market,an MNE can learn about superior management techniques and superior product and process technologies.

Quiz 7: Foreign Direct Investment