Question 1

If a nation is continuing to receive appreciable amounts of foreign investment,its investment climate must be favorable.

Accepted Answer

If a nation is receiving significant foreign investment, it indicates that investors deem the country's investment climate to be favorable. Investors consider several factors, such as the country's economic stability, legal framework, and ease of doing business, before investing in a particular nation. Therefore, foreign investment is a positive indicator of a favorable investment climate.

Question 2

Michael Porter claims that demand conditions,factor conditions,related and supporting industries,and firm strategy,structure,and rivalry,rather than government and chance,are factors that affect national competitiveness.

Accepted Answer

Michael Porter's Diamond Model actually includes government and chance as two additional factors that influence national competitiveness, alongside the four main determinants: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

Question 3

A nation's relative ability to design,produce,distribute,or service products within an international trading context,while earning increasing returns on its resources,is known as national competitiveness.

Accepted Answer

This is a correct definition of national competitiveness, which refers to a country's capacity to excel in global markets through efficient resource allocation and increasing productivity.

Question 4

The price of one currency stated in terms of another currency is the exchange rate.

Accepted Answer

This is the correct definition of exchange rate.

Question 5

The proportion of the outstanding stock of foreign direct investment accounted for by the United States declined by two-thirds between 1980 and 2008.

Accepted Answer

According to data from the United Nations Conference on Trade and Development, the proportion of outstanding stock of foreign direct investment accounted for by the United States increased from 37% in 1980 to 44% in 2008. Therefore, the statement is false.

Question 6

An arrangement where one or more activities that could be provided in-house are instead provided by another company is offshoring.

Accepted Answer

Offshoring refers to relocating business processes or services to another country, while outsourcing involves contracting out services to another company, which may or may not be in a different country.

Question 7

Historically,approximately two-thirds of the value of corporate investments made in the United States from abroad have been spent to acquire going companies rather than to establish new ones.

Accepted Answer

The statement accurately reflects the historical trend of corporate investments in the United States from abroad.

Question 8

The book value,or the value of the total outstanding stock,of all foreign direct investment worldwide was $16.2 trillion at the end of 2008.

Accepted Answer

This statement is true. According to UNCTAD's World Investment Report 2009, the book value of total foreign direct investment worldwide was $16.2 trillion at the end of 2008.

Question 9

Reflecting their continued economic development,developing countries have dramatically increased their share of FDI stock,from 1 percent in 1980 to nearly 15 percent in 2008.

Accepted Answer

The statement is true.

Question 10

Industrialized nations invest primarily in one another just as they trade more with one another.

Accepted Answer

Industrialized nations often have more developed financial systems and stronger economies, so they tend to invest in each other. Similarly, they may have similar levels of technology and consumer demand, leading to more trade between them.

Question 11

Linder's theory of overlapping demand explains the direction of trade for minerals and agricultural products.

Accepted Answer

Linder's theory of overlapping demand primarily explains trade patterns based on similar preferences of consumers in countries with comparable levels of income, focusing more on manufactured goods rather than minerals and agricultural products.

Question 12

Some observers have argued American industry and the American economy as a whole will be strengthened by offshoring activities to workers in India or other nations that have comparative advantages in areas such as labor costs.

Accepted Answer

This is a commonly held argument in favor of offshoring.

Question 13

The primary reasons for international trade is a lack of natural resources in the developed nations.

Accepted Answer

While the lack of certain natural resources can be a factor in international trade, it is not the primary reason. Other factors such as comparative advantage, demand for varied goods and services, and economies of scale are also important drivers of international trade.

Question 14

International trade theory shows that nations will attain a higher level of living by specializing in goods for which they possess a comparative advantage and importing those for which they have a comparative disadvantage.

Accepted Answer

This is the basic premise of the theory of comparative advantage, which was first proposed by economist David Ricardo. By specializing in producing goods that they have a comparative advantage in, countries can produce more efficiently and trade with other countries to obtain goods that they are less efficient at producing. This can result in increased productivity, economic growth, and higher standards of living for all countries involved in international trade.

Question 15

Developed by the United Nations Conference on Trade and Development,the Trade and Development Index is a tool whose goal is to assist efforts "to systematically monitor the trade and development performance of developing countries with a view to facilitating national and international policies and strategies that would ensure that trade serves as a key instrument of development."

Accepted Answer

This statement accurately describes the Trade and Development Index developed by the United Nations Conference on Trade and Development.

Question 16

An important development in the level of worldwide FDI is the emergence of what has been called the "bamboo network" of ethnic Chinese family businesses based outside of China.

Accepted Answer

The statement is true. The bamboo network refers to the network of ethnic Chinese family businesses based outside of China who are involved in FDI.

Question 17

Currency devaluation helps a nation avoid losing markets and regain competitiveness in world markets.

Accepted Answer

When a country devalues its currency, its goods and services become cheaper for foreign buyers, leading to an increase in exports and the country's overall competitiveness in the global market.

Question 18

Direct investment refers to overseas purchases of stocks and bonds to gain a return on the funds invested.

Accepted Answer

Direct investment refers to the purchase of physical assets such as factories, real estate, and businesses, rather than stocks and bonds.

Question 19

Portfolio investment is the purchase of sufficient stock in a firm to obtain significant management control.

Accepted Answer

Portfolio investment is the purchase of a collection of stocks, bonds and other securities for the purpose of investment, without obtaining significant management control.

Question 20

According to the text,differences in taste,a demand variable,can reverse the direction of trade predicted by the theory.

Accepted Answer

The text states that "differences in taste, a demand variable, can reverse the direction of trade predicted by the theory." This means that it is possible for differences in taste to change the direction of trade from what the theory predicts.

Quiz 2: International Trade and Investment