85) Camille told the management team that investing capital in the Swaziland-based
manufacturing plant would not only benefit their company in terms of labor costs but would also
promote significant economic development in Swaziland. What type of host-country benefit is
Camille referring to?
A) resource-transfer effect
B) balance-of-payments effect
C) effects on competition
D) effects on foreign exchange rate
E) technology effect
86) Foreign managers trained in the latest management techniques can often help to improve the
efficiency of operations in a host country, whether those operations are acquired or greenfield
developments. This benefit of FDI falls into the category of
A) employment effects.
B) balance-of-payments effects.
C) effects on competition.
D) resource-transfer effects.
E) autonomy effects.
87) Most developing countries do not have access to the technology available in developed
nations, but these developing nations need technology to create new jobs and stimulate the
economy. Which aspect of inward FDI do these developing nations rely on to have access to
needed technology?
A) balance-of-payments effects
B) employment effects
C) effects on foreign exchange rate
D) effects on competition
E) resource-transfer effects
88) Direct effects of FDI on employment in the host country arise when a foreign MNE
A) brings in managers trained in the latest management techniques from the home country.
B) creates jobs because of increased local spending by employees of the MNE.
C) employs a number of host country citizens.
D) causes local suppliers to hire more people.
E) creates jobs in the supporting industries.
89) Which situation represents an indirect effect of FDI on employment in a host country?
A) Jasper Inc. is a foreign MNE and employs a number of host-country citizens.
B) The employees of ShrillPlans Corp. have more money to spend and as a result, more home
construction jobs are being created in the country.
C) DynaDigs brought in managers from the home country for its operations in the host country.
D) RaceandRoll Corp. recruits people from the host country for research and development.
E) Mills Rite Inc. sends home country employees to host countries for training.
90) A(n) ________ account is a national account that tracks both payments to and receipts from
other countries.
A) equity
B) dematerialized
C) balance of trade
D) asset
E) balance-of-payments
91) Kendrik needs to track which goods have been exported by the United States and which goods
have been imported. To learn this, he should use the ________ account.
A) current
B) payments
C) internal
D) tariff
E) savings
92) A current account deficit is also known as a(n) ________ deficit.
A) stock
B) inventory
C) external
D) tariff
E) trade
93) When a country in Central America is importing more goods and services than it is exporting,
it is incurring a(n)
A) trade surplus.
B) current account deficit.
C) positive balance of payment.
D) outward FDI.
E) net capital inflow.
94) A current account surplus is favored over a deficit. If a country is faced with a current account
deficit it would have to ________ in order to support this situation.
A) borrow from the IMF
B) sell assets to foreigners
C) divest stock in domestic corporations
D) purchase stocks, bonds, and real estate in other countries
E) issue negotiable instruments like bills of exchange
95) A possible effect of FDI in the form of a greenfield investment in a host country is that it
A) drives down prices and increases the economic welfare of consumers.
B) raises unemployment levels.
C) causes firms to fight for scarce capital investments.
D) leads to an oligopolistic market and unfair pricing.
E) leads to decreased productivity, product and process innovations, and lesser economic growth.
96) The most important concerns regarding the costs of FDI for the home country center on the
A) balance-of-payments and employment effects of outward FDI.
B) technology capture effect and the perceived loss of national sovereignty.
C) reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D) import of substantial input from abroad and being held to “economic ransom.”
E) exposure to foreign markets and the decreased costs of production.
97) If the United States invests in breakfast cereal production facilities in Canada, it would be
engaging in
A) a domestic transfer.
B) offshore production.
C) franchising.
D) the difference principle.
E) an acquisition.
98) MedFirst Instruments, a U.S. company, invests in a manufacturing facility in Mexico. The
production from the Mexican facility is used entirely to serve the company’s U.S. customers.
MedFirst Instruments’ activity is called
A) onboard production.
B) offshore production.
C) licensing.
D) contract manufacturing.
E) vertical integration.
99) ________ are a major type of foreign investment risk that is insurable through
government-backed programs.
A) Lack of funds
B) Risk of transaction loss
C) Poor strategic tie-ups
D) Risks of expropriation
E) Losses due to natural calamities
100) As an incentive to encourage domestic firms to undertake FDI, many advanced countries
have
A) eliminated double taxation of foreign income.
B) started imposing local content requirements.
C) imposed higher import tariffs.
D) abolished the use of custom duties.
E) eliminated subsidies.
101) One example of a home-country policy for restricting outward FDI is
A) eliminating double taxation of foreign income.
B) manipulating tax rules to encourage the firms to invest at home.
C) withdrawing government-backed insurance programs provided to local investors.
D) reducing interest rates earned on domestic investments.
E) prohibiting organizations from entering into an oligopoly.
102) The Canadian government decides to offer tax concessions to foreign companies that agree to
build a manufacturing facility in Canada. This tax concession is a way to
A) encourage inward FDI.
B) discourage inward FDI.
C) encourage outward FDI.
D) discourage outward MNE.
E) discourage inward MNE.
103) Host governments use a range of controls to restrict inward FDI. The two most common are
A) monetary restraints and prohibition on investing in certain countries.
B) voluntary export restrictions and employment restraints.
C) ownership restraints and performance requirements.
D) tax concessions and government-backed insurance.
E) employment restraints and tax deductions.
104) What form of FDI is NOT an option in the service industry, due to the fact that many services
have to be produced where they are sold?
A) FDI
B) franchising
C) greenfield investment
D) exporting
E) outsourcing
105) Firms for which licensing is NOT a good option include those
A) based in low-technology industries.
B) that have valuable know-how.
C) characterized by low cost pressures.
D) where transportation costs are high.
E) which need to have low control over foreign operations.
106) Although it normally involves much longer-term commitments, franchising is essentially the
service industry version of
A) exporting.
B) licensing.
C) foreign direct investment.
D) greenfield investment.
E) diversifying.
107) Describe the difference between the flow of foreign direct investment and the stock of foreign
direct investment.
108) Explain why FDI has grown more rapidly than world trade and world output.
109) Despite its advantages, FDI has been described as an “expensive” and “risky” international
growth strategy. Other things being equal, why is FDI expensive and risky when compared to
licensing and exporting?
110) Discuss the most common limitations of exporting as compared to FDI.
111) Discuss the three major drawbacks identified by the internationalization theory regarding
licensing as a method of FDI.
112) Describe the circumstances that lead to a firm favoring foreign direct investment over
exporting as an entry strategy.
113) Discuss location-specific advantages and provide an example of this advantage.
114) In the context of FDI, compare and contrast the political ideologies of the radical view, the
free market view, and pragmatic nationalism.
115) Briefly describe how Bolivia and Venezuela have taken steps that indicate a hostile approach
to FDI.
116) Briefly describe the benefits of inward FDI for a host country that arise from employment
effects and balance-of-payments effects.
117) What are the benefits of FDI to the home (source) country?
118) Describe the role of the WTO in the liberalization of FDI.
119) Identify which types of industries should not rely on licensing as a form of FDI.
120) Explain why franchising is a logical choice for FDI in the fast-food industry.