Question 1

According to the international product life cycle theory,in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?

Accepted Answer

According to the international product life cycle theory, in the new product stage, a good is produced in the home country because of uncertain domestic demand and to keep production close to the research department. This is because the product is new and untested, and the domestic market may not yet fully understand or trust it. Therefore, it makes sense to produce it in the home country, where the research and development team can closely monitor its performance and make any necessary adjustments before expanding production to other countries.

Question 2

In industries having a limited number of small firms,foreign direct investment decisions frequently resemble a "follow the leader" scenario.

Accepted Answer

The answer of In industries having a limited number of...

Question 3

Foreign direct investment is acquisition of foreign assets for the purpose of controlling them.

Accepted Answer

Foreign direct investment involves the acquisition of controlling interest in foreign assets such as businesses, real estate, or natural resources. It is a way for companies to expand their international presence and gain access to new markets, technology, and resources.

Question 4

Which of the following is a form of foreign direct investment?

Accepted Answer

Participation in a joint venture involves a direct investment in a foreign company or entity, making it a form of foreign direct investment. Contract manufacturing arrangement and mutual fund ownership are not direct forms of investment, and foreign bond ownership is a form of indirect investment.

Question 5

In which stage of the international product life cycle does the innovating firm's country become a net importer of the product?

Accepted Answer

In the standardized product stage, the product has become widely available and production may have shifted to countries with lower manufacturing costs. As a result, the innovating firm's country may start importing the product due to these cost advantages elsewhere.

Question 6

According to the international product life cycle theory,in which stage of a product's life cycle does a company directly invest in production facilities in countries where demand is great enough to warrant production facilities?

Accepted Answer

According to the international product life cycle theory, during the maturing product stage, demand for a product has increased, and the product has become widely popular. At this stage, companies invest in production facilities in countries where demand is high enough to warrant local production, as it enables the company to reduce transportation costs and be more responsive to local market needs. Therefore, the correct answer is B) maturing product stage.

Question 7

A majority of the regulatory changes that governments around the world introduced in recent years are unfavorable to FDI.

Accepted Answer

Many governments have actually been implementing regulatory changes aimed at attracting more Foreign Direct Investment (FDI) by creating a more favorable business environment, simplifying regulations, and offering incentives.

Question 8

The income payments account includes income earned on home country assets held abroad.

Accepted Answer

The income payments account typically includes payments made to foreign investors from domestic residents for assets the foreign investors own in the reporting country, not income earned on home country assets held abroad.

Question 9

What two factors propel growth in foreign direct investment?

Accepted Answer

The answer of What two factors propel growth in foreign...

Question 10

The realization that companies can start production in the most efficient and productive locations in the world and export to markets worldwide led to a new surge of foreign direct investment into ________.

Accepted Answer

Newly industrialized nations are often the most competitive in terms of production costs and efficiency, making them attractive for foreign direct investment from companies looking to take advantage of global production and distribution strategies.

Question 11

One reason a home country may discourage foreign direct investment outflows is to protect its "sunset" industries.

Accepted Answer

A home country may actually encourage its firms to invest abroad to expand and remain globally competitive. Discouraging foreign direct investment outflows would limit the potential benefits (such as increased competitiveness and access to new markets) that can come from such investments. However, a home country may discourage foreign direct investment inflows if it believes its domestic industries are at risk of being overtaken by foreign competitors.

Question 12

The merchandise account includes exports and imports of tangible goods.

Accepted Answer

The merchandise account is a balance of trade account that includes the exports and imports of tangible goods, such as raw materials, consumer products, and manufactured goods.

Question 13

Building a subsidiary abroad from the ground up is called a greenfield investment.

Accepted Answer

A greenfield investment is when a company builds a subsidiary abroad from scratch, often on undeveloped land or a previously untouched site. It is also known as a greenfield project or foreign direct investment.

Question 14

The soaring cost of developing subsequent stages of technology has led multinationals to engage in cross-border alliances and acquisitions.

Accepted Answer

The statement is true. Multinationals often seek to share the cost burden of developing new technologies by forming partnerships with other companies or acquiring them outright. This can help spread the risk and bring in new expertise and resources.

Question 15

Firms from emerging markets account for a greater share of global mergers and acquisitions than developed markets.

Accepted Answer

According to a report by Baker McKenzie and Oxford Economics, in 2019, firms from emerging markets accounted for 53% of global mergers and acquisitions, while firms from developed markets accounted for 47%. This trend is expected to continue in the coming years as emerging market firms look to expand globally.

Question 16

A current account surplus occurs when a country exports more goods and receives more income from abroad than it imports and pays abroad.

Accepted Answer

This is the definition of a current account surplus.

Question 17

Which of the following is least likely a reason for companies to seek cross-border mergers and acquisitions?

Accepted Answer

Companies seeking cross-border mergers and acquisitions typically do so to expand their operations, reach new markets, increase competitiveness, or address gaps in their product lines. However, raising budgets for research and development activities is usually not a primary motivating factor for such deals.

Question 18

Developed countries have historically been the major participants behind cross-border mergers and acquisitions.

Accepted Answer

This statement is true. Developed countries, especially the US and Europe, have been the dominant players in cross-border mergers and acquisitions. However, emerging markets such as China and India are increasing their participation in recent years.

Question 19

Increasing globalization is causing a growing number of international companies from emerging markets to undertake FDI.

Accepted Answer

This is true. As globalization continues to advance, companies from emerging economies are increasingly participating in foreign direct investment (FDI) activities. This trend is helped by factors such as increased exposure to global markets, improved economic stability, and the availability of abundant capital and resources. As a result, we can expect to see more and more international companies from emerging markets investing in foreign markets in the years to come.

Question 20

Which international trade theory originated in the marketing field?

Accepted Answer

The product life cycle theory, which describes how a product evolves through stages of introduction, growth, maturity, and decline, was first developed in the marketing field but has since been applied to international trade as well.

Quiz 7: Foreign Direct Investment