Deck 14: Foreign Finance,investment,aid,and Conflict: Controversies and Opportunities

Question 1

Critically evaluate the following statement: "If no other assistance is available,tied aid should be accepted anyway,on the grounds that developing countries should accept any help they can get."

Answer 1

Calls for a discussion of the costs and benefits of tied aid,which can lead to net positive
or negative benefits.

Question 2

An argument in favor of foreign direct investment is that it tends to
(a)reduce inequality.
(b)promote rural development.
(c)increase access to modern technology.
(d)decrease local ownership.
(e)none of the above.

Answer 2

C

Question 3

State at least two major benefits of promoting non-governmental organizations in developing countries as sources and conduits of foreign assistance.

Answer 3

Benefits:less constrained by political motivations,and able to avoid cynicism and suspicion by working directly with and for local people.

Question 4

MNCs can often decrease their tax liability through
(a)use of more capital-intensive techniques.
(b)use of transfer pricing.
(c)use of more foreign input sources.
(d)bargaining with the host country.
(e)none of the above.

Question 5

One of the significant criticisms of MNCs is
(a)the relatively low wages they pay.
(b)on balance they bring in more capital than officially registered.
(c)increased monetary policy effectiveness.
(d)all of the above.
(e)none of the above.

Question 6

A motivation of developed countries in providing development assistance is
(a)the creation of markets.
(b)geopolitical influence.
(c)genuine humanitarian concern.
(d)all of the above.
(e)none of the above.

Question 7

What role have remittances and direct foreign investment played in Guatemala,Costa Rica,and Honduras?

Question 8

What are the primary causes of armed conflict in developing countries and what increases the risk factor for these conflicts?

Question 9

It has been argued that tied aid leads to inefficiencies in the recipient country's economy.Explain how this could occur.

Question 10

Explain what is meant by investment by MNCs encouraging inappropriate consumption.

Question 11

Which of the following is an argument against MNCs?
(a)A reduction in inequality.
(b)An increase in the use of labor intensive technology.
(c)A deterioration of the balance of payments accounts.
(d)An increase in government tax revenue.
(e)None of the above.

Question 12

Explain the motives of developed countries in providing foreign aid.

Question 13

The amount of foreign aid in proportion to developed countries' GNP has
(a)increased over time.
(b)remained fairly stable over time.
(c)decreased over time.
(d)fluctuated widely but has shown no clear trend.

Question 14

Suppose an MNC subsidiary buys 100 input units from its parent at a price of $2 each.It has $300 in additional production costs,and sells its 100 units of output for $6 to the MNC.It pays a 25% local profit tax.The MNC sells the output at home for $8,and its cost of producing inputs is $1.It pays a profit tax of 20% at home on repatriated profits.What is the subsidiary net profit? Assume no selling costs at home.What is the MNC's total profit from the operation?

Question 15

With tied aid
(a)MNC investment depends on tax concessions.
(b)aid recipients must use the aid to purchase goods and services from the donor.
(c)aid recipients must follow World Bank/IMF conditionality.
(d)all of the above.

Question 16

Why does investment by multinational corporations not necessarily help to close the foreign exchange gap.

Question 17

Why does multinational corporation investment not necessarily offer the advantage of domestic employment expansion?

Question 18

What are the main forms through which foreign capital flows into LDCs? Discuss the evolution ofthe various forms across the last decade.

Question 19

Discuss how remittances can help reduce poverty and meet other development objectives in recipient nations?

Question 20

Is it possible to proactively prevent armed conflict in developing countries?

Question 21

As an absolute amount (billions of dollars),which of the following countries providesthe greatest amount of foreign aid?
(a)United Kingdom.
(b)United States.
(c)Italy.
(d)Sweden.

Question 22

The direct benefits of out-migration to a developing nation include:a()Loss of skilled workers.b()Increased remittances.c()Job growth.d()Larger capital formation.

Question 23

Voluntary organizations that work with and on behalf of mostly local grassroots organizations in developing countries are termed
(a)international organizations.
(b)nongovernmental organizations.
(c)multilateral institutions.
(d)equity organizations.
(e)none of the above.

Question 24

As a percentage of GNI,which of the following countries provides the greatest amountof foreign aid?
(a)United Kingdom.
(b)United States.
(c)Italy.
(d)Sweden.

Question 25

Which of the following is not a type of portfolio investment?
(a)Investment in stocks.
(b)Multinational corporation investment.
(c)Investment in commercial paper.
(d)All are types of portfolio investment.
(e)None are types of portfolio investment.

Question 26

A model comparing savings and foreign exchange constraints to see which is binding for economic growth is known as a
(a)project appraisal.
(b)two gap model.
(c)computable general equilibrium.
(d)trickle down model.
(e)none of the above.

Question 27

During 1990-2003,as a percentage of total resource flows to developing countries,the shareof official flows has
(a)remained relatively constant.
(b)increased by a relatively small percentage.
(c)increased by a relatively large percentage.
(d)decreased by a relatively small percentage.
(e)decreased by a relatively large percentage.

Question 28

The developing area receiving the largest share of direct foreign investment is
(a)Africa.
(b)Asia.
(c)Latin America.
(d)Transition economies.

Question 29

In the two-gap model,which of the following gaps,when binding,leads to foreign aid having the largest impact on GNP?
(a)Fiscal gap.
(b)Savings gap.
(c)Foreign exchange gap.
(d)None of the above.

Question 30

The best explanation for the late 1994/early 1995 collapse of the Mexican peso and stock market is
(a)free movement of capital internationally is destabilizing for a developing country.
(b)portfolio investments were camouflaging overvalued exchange rates.
(c)debt for equity swaps had created imbalances in the ownership structure of the economy.
(d)the potential benefits of NAFTA had been oversold.

Question 31

The largest recipient of remittances in dollars in the year 2008 was:
(a)India.
(b)Mexico.
(c)Pakistan.
(d)Philippines.

Question 32

Which of the following countries meets regularly the UN target for the provision of foreign aid(as a percent of GNI)?
(a)Japan.
(b)United States.
(c)Denmark.
(d)France.