Deck 16: Foreign Direct Investment Sustainability

Question 1

The interconnectedness of national economies is partially due to the international flow of capital and the proliferation of Foreign Direct Investment (FDI).

Answer 1

True

Question 2

The opposite of FDI is disinvestment.

Answer 2

True

Question 3

The largest beneficiaries of FDI are China and Brazil.

Answer 3

False

Question 4

Equity participation requirements require foreign investors to provide all the capital (funds) need for the investment project.

Question 5

The major factor that determines whether capital and investments flow into or out of a country is macroeconomic stability:

Question 6

"Capital flight" refers to the inflow of capital into a country.

Question 7

Establishing a new company in a foreign country is referred to as a Brownfield investment:

Question 8

Another name for a Greenfield investment is a de novo investment.

Question 9

Portfolio foreign investment is a form of indirect foreign investment.

Question 10

FDI is vital to lesser-developed countries because it can provide financial, technological and managerial skills, information, goods, and services that promote growth.

Question 11

A recent trend in FDI has been away from financing small company, high-tech start-ups and towards large company FDI.

Question 12

Reciprocal distribution agreements involve countries from different countries agreeing to distribute each other's products in their home countries

Question 13

Ancillary to a reciprocal distribution agreement the parties may agree to market each other's products, which is known as "free load marketing."

Question 14

Partnering between more than two companies are often referred to as "syndicates."

Question 15

In a master franchise arrangement, the franchisee also acts as a subfranchisor.

Question 16

Some of the countries that are members of the Eurasian Economic Union include Russia, Armenia, Kazakhstan, and Slovenia.

Question 17

In China's case the dramatic inflow of FDI is due to the fact that China ranks high in the area of "ease to do business."

Question 18

The ease in doing business or enforcing contracts in China is highly dependent on the region of the country.

Question 19

The United States is a member of the regional group known as the Asia-Pacific Economic and Cooperation (APEC).

Question 20

Investor disputes with foreign countries are commonly settled through arbitration at the International Centre for Settlement of Investment Disputes (ICSID).

Question 21

Countries enter into bilateral investment treaties to ensure the rights of its nationals investing in a foreign country.

Question 22

Bilateral investment treaties prohibit any type of expropriations of its national's property in a foreign country.

Question 23

Nationalization is when a foreign country takes the property of a specific foreign company.

Question 24

The opposite of nationalization is privatization.

Question 25

Bilateral investment treaties often require the countries to abide by the Declaration on Fundamental Principles and Rights at Work.

Question 26

Both parties must be members of the ICSID Convention in order to use ICSID Arbitration.

Question 27

In the Asian Agricultural Products Ltd case, the court held that the right to ICSID Arbitration is not determined by the parties' contract, but by the existence of a bilateral investment treat.

Question 28

Parallel proceedings are when an investor pursues claim against a foreign government in court and through international arbitration.

Question 29

A concession agreement is when three or more countries agree to provide investor protections to all parties to the agreement.

Question 30

An "umbrella clause" in a concession agreement allows an investor to bring claims not covered under a bilateral investment treaty within the coverage of the bilateral investment treaty.

Question 31

Proprietary information is often used interchangeably with the term trade secret.

Question 32

One joint venture exiting strategy is called Russian Roulette where a partner wanting to exit a joint venture makes an offer to sell to the other parties and if they do not agree, then the partner is free to sell to an outside party on no less favorable terms then it had offered to the other partners.

Question 33

A Tag-Along provision allows a majority owner wishing to sell its ownership in an enterprise to force the minority owners to also sell at the same terms.

Question 34

Developing countries see competition law as a means to eliminate barriers to attract foreign capital and investment.

Question 35

Major factors that determine the flow of capital and investment into a country include:

A) Level of Corruption
B) Political instability
C) Unpredictability of regulatory laws
D) All of the Above
E) A & C Only

Question 36

The Bhopal Disaster illustrates some of the factors that should be considered by a foreign investor before committing to an investment, including:

A) Lack of control over operations of the project
B) Lack of control over the design of the project
C) Lack of independent safety inspections of project
D) All of the Above
E) B & C Only

Question 37

Types of FDI include

A) Purchasing a foreign country
B) Joint Venturing with a company located in the foreign country of the investment
C) Hiring persons from a foreign country to work in your home country, who then transmit a portion of their earnings back to the foreign country.
D) All of the Above
E) A & B Only

Question 38

Companies that want to mitigate the risks of foreign investment may elect to couple with a company in the foreign country by means of:

A) Joint Venture
B) Joint Marketing Agreement
C) Licensing Agreement
D) All of the Above
E) A & B Only

Question 39

Different types of franchise arrangements include:

A) Master Franchising
B) Quasi-Franchising
C) Are Development Agreements
D) A & B only
E) A & C only

Question 40

FDI often diminishes when the following events occur:

A) Extreme currency fluctutaions
B) Extreme changes in commodity prices
C) Failure of countries to restructure their economies
D) All of the Above
E) A & B Only

Question 41

The contraction of the Russian economy in 2015-16 was due to the following factors:

A) Rapid decline in world oil prices
B) Failure to restructure its economy
C) Western economic and financial sanctions due to Russia's invasion of Crimea
D) All of the Above
E) A & C Only

Question 42

The WTO's Agreement on Trade-Related Investment Measures (TRIMs) prohibit national rules that place restrictions of foreign companies including:

A) Local content requirements
B) Export Performance Requirements
C) Payment of taxes for goods sold in the foreign country
D) All of the Above
E) A & B Only

Question 43

Most bilateral investment treaties provide that an investor may make a claim against the foreign country in the following ways.

A) Bring a claim under UNCITRAL Arbitration Rules
B) Bring a lawsuit in the investor's home country.
C) Bring a lawsuit in the courts of the foreign country.
D) File a petition with the United Nations' Security Council.

Question 44

Strategic joint venturing agreement structures the joint venture to increase the likelihood of collaboration between the partners, including:

A) Substantial Mutual Investments ("sunk costs")
B) Interlocking Boards of Directors
C) Assignment of Key Personnel
D) All of the Above
E) A & B Only

Question 45

Discuss the risks of foreign direct investment and ways an investor can mitigate those risks.

Question 46

ABC Corp. decides to enter into a joint venture with its archrival XYZ Corp. in order to develop a new product. The problem is that as rivals they do not trust one another. What provisions would you place in the joint venture agreement to ensure that they collaborate in a meaningful way? Discuss the purposes of each of these provisions or strategies.