72) A home country encourages outflows of foreign direct investment because it ________.
A) helps in replacing jobs at home
B) sends resources out of the home country
C) tends to increase the long-term competitiveness of firms
D) takes the place of all the exports and imports in the country
73) Which of the following methods is being used when a host country provides lower tax rates
and low-interest loans to firms from abroad for encouraging inflows of foreign direct
investment?
A) financial incentives
B) sanctions
C) local content requirements
D) embargoes
74) Ownership restrictions and performance demands are used by ________.
A) host countries to promote FDI
B) host countries to restrict FDI
C) home countries to promote FDI
D) home countries to restrict FDI
75) Tax breaks on profits earned abroad and political pressures are used by ________.
A) host countries to promote FDI
B) host countries to restrict FDI
C) home countries to promote FDI
D) home countries to restrict FDI
76) Which of the following methods is used by a host country to restrict incoming foreign direct
investment?
A) differential tax rates for earnings abroad
B) insurance to cover the risk of overseas investments
C) low-interest loans to investors
D) performance demands
77) Which of the following is used by home-country governments to promote outbound foreign
direct investment?
A) political pressure
B) performance demands
C) ownership restrictions
D) sanctions
78) Which of the following is used by home country governments to limit outbound foreign
direct investment?
A) ownership restrictions
B) differential tax rates
C) tax breaks
D) low-interest loans
Scenario: Global Manufacturing Inc. (GMI)
Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which
two components of its product will be manufactured in locations where the cost of production is
lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to
purchase an existing company in Brazil to produce component A and build a subsidiary in
Thailand to produce component B.
79) GMI’s investments are examples of ________.
A) foreign direct investment
B) portfolio investment
C) vertical integration
D) horizontal integration
80) Which of the following systems of production is used by GMI?
A) job
B) craft
C) rationalized
D) customized
81) GMI’s purchase of the Brazilian company is best classified as a(n) ________.
A) greenfield investment
B) portfolio investment
C) acquisition
D) demerger
82) GMI’s subsidiary for component B in Thailand is best described as a(n) ________.
A) greenfield investment
B) portfolio investment
C) acquisition
D) merger
83) In which of the following accounts would GMI‘s purchase of the company in Brazil appear?
A) the current account of the United States
B) the current account of Brazil
C) the capital account of the Thailand
D) the capital accounts of Brazil and the United States
Scenario: Happyland
Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly
skilled labor force. Happyland is now encouraging foreign direct investment flows. The country
has been exporting textiles, computer hardware, and software programs. The net result of the
trade is that Happyland exports far more goods and services and receives more income from
abroad than it imports and pays abroad.
84) Happyland’s international trade situation illustrates that the country is experiencing a
________.
A) current account deficit
B) capital account deficit
C) current account surplus
D) capital account surplus
85) Transactions involving the export of Happyland’s textile and computer products are included
in its ________ account.
A) capital
B) merchandise
C) services
D) income payments
86) If Happyland advertises its beaches and attracts tourists, the tourism-related income would be
recorded in its ________ account.
A) capital
B) services
C) income payments
D) merchandise
87) If Happyland is successful in attracting foreign direct investment, transactions involving
those investments would appear in the country’s ________ account.
A) capital
B) services
C) income payments
D) merchandise
88) Which of the following methods will Happyland use to encourage foreign direct investment
inflows?
A) tax incentives
B) sanctions
C) ownership restrictions
D) performance demands
89) Which of the following methods will Happyland use to discourage foreign direct investment
inflows?
A) tax incentives
B) low-interest loans
C) performance demands
D) tax breaks
Scenario: Blickinstock at the Crossroads
Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To
that end, Blickinstock is trying to decide whether to purchase an existing company in a remote
region of Argentina or build its own subsidiary. Keith Moon, Blickinstock’s vice president of
global business development, will be making a presentation to the board outlining the company’s
options.
90) Blickinstock has identified a company that it can acquire or merge with. Which of the
following statements would represent the least likely reason for Blickinstock to go ahead with
the merger?
A) The merger would help increase Blickinstock’s global competitiveness.
B) The merger would allow the company to get a foothold in the nascent Latin American market.
C) The merger would help to fill the gaps in Blickinstock’s product line.
D) The merger would bring in increased cash-flows that Blickinstock can use to acquire other
firms.
91) If board members ask about the maquiladora industry, Keith would explain that it refers to
________.
A) Mexico’s low-cost labor union
B) the cross-border drug trafficking problem that threatens to limit legitimate production in
Mexico
C) the low-wage, 130-mile-wide strip along the U.S.-Mexico border that comprises a special
economic region
D) Latin America’s new model for business that restricts foreign investors to take advantage of
government incentives
92) If Blickinstock’s home government tries to stop the company from investing in Latin
America, the government is most likely trying to ________.
A) protect its balance of payments
B) prevent a monopoly situation from occurring
C) discourage the entry of a “sunset” company
D) protect the “sunset” companies in Latin America
93) What two factors propel growth in foreign direct investment?
94) Using any two of the four theories that appear in your text, explain why companies engage in
foreign direct investment.
95) Explain the theory of market imperfections and describe the two major market imperfections.
96) Describe any three management issues involved in foreign direct investment decisions.
97) Discuss the role entrepreneurs and small businesses play in the expansion of FDI. What are
some of the surprises that managers face as they invest in new markets abroad?
98) Explain the market power theory of FDI, and discuss why the decision whether or not to
follow rivals into a new international market is important.
99) Explain the concept of balance of payments and describe its two major components.
100) Discuss why a host country might promote or restrict foreign direct investment.
101) Why is it important to assess R&D costs when considering FDI? Given its costs, how can
FDI benefit the host country with access to technology, management skills, and employment?
102) Identify why a home country might support or discourage outgoing foreign direct
investment.
103) Explain the various methods that host countries use to restrict and promote foreign direct
investment.
104) How does the eclectic theory explain the concept of FDI? How can a host country offer
incentives to attract FDI?