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58) The pragmatic nationalist view highlights _____ of FDI.
A) only the benefits
B) only the costs
C) both the benefits and costs
D) neither the benefits nor the costs
59) An aspect of _____ is the tendency to aggressively court FDI believed to be in the
national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or
grants.
A) the radical view
B) the noninterventionist principle
C) the free market view
D) pragmatic nationalism
60) Recent years have seen _____ in the number of countries that adhere to a radical ideology
regarding FDI.
A) decline
B) no change
C) a marked increase
D) a slight increase
61) According to pragmatic nationalist view, FDI should be allowed so long as
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A) the benefits outweigh the costs.
B) they do not aggressively court domestic firms.
C) the costs outweigh the benefits.
D) the MNE does not seek tax breaks or grants.
62) Why is it said that not all the new jobs created by FDI represent net additions in
employment?
A) because of the uncertainty of the overall economic environment
B) because most of the job creation is indirect in nature
C) because jobs created by an investment may be offset by the jobs lost in domestic
companies
D) because the unemployment rate more or less remains constant over the short term
63) When a company brings capital and/or technology to a host country, the host country
benefits from the
A) political effect of FDI.
B) resource-transfer effect of FDI.
C) balance-of-payments effect of FDI.
D) bandwagon effect of FDI.
64) A country’s _____ keep track of its payments to and its receipts from other countries.
A) federal payments ledgers
B) concurrent accounts
C) checks-and-balances accounts
D) balance-of-payments accounts
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65) Host country citizens that are employed by an MNE following an FDI are an example of
A) an internality.
B) a direct effect.
C) an externality.
D) an indirect effect.
66) A country’s _____ accounts keep track of both its payments to and its receipts from other
countries.
A) current
B) offshore
C) balance-of-payments
D) currency
67) If the FDI is a substitute for imports of goods or services, the effect can be to improve the
_____ of the host country’s balance of payments.
A) offshore account
B) currency account
C) market imperfections
D) current account
68) FDI can benefit the home country’s _____ if the foreign subsidiary creates demands for
home-country exports of capital equipment, intermediate goods, complementary products, and
the like.
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A) balance of payments
B) oligopolistic industry
C) current accounts
D) licensing endeavors
69) Which of the following arises when a country is importing more goods and services than
it is exporting?
A) current account surplus
B) trade deficit
C) trade surplus
D) trade balance
70) In which of the following situations would FDI improve the current account of the host
country’s balance of payments?
A) if the foreign subsidiary imports a substantial number of its inputs from abroad
B) if the FDI reduces existing employment opportunities
C) if the FDI is a substitute for imports of goods or services
D) if the FDI results in substitution of products produced domestically
71) In which way can the source country’s balance of payments benefit from FDI made in a
foreign country?
A) from cash outflow during the initial investment to finance the FDI
B) if the purpose of the foreign investment is to serve the home market from a low-cost
production location
C) from the inward flow of foreign earnings
D) if FDI is a substitute for direct exports
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72) How is the adverse effect of the balance of payments for the home country due to FDI
usually offset?
A) by increased imports to the home country as a result of the FDI
B) by the subsequent inflow of foreign earnings
C) by substituting direct exports made earlier from the home country
D) by further investments usually made to expand foreign operations
73) FDI undertaken to serve the home market is known as
A) outsourcing.
B) FDI substitution.
C) offshore production.
D) home market FDI.
74) How can FDI undertaken to serve the home market stimulate economic growth in the
home country?
A) by freeing home-country resources to concentrate on activities where the home
country has a comparative advantage
B) by importing more goods and services than it is exporting
C) by circumventing trade barriers that may have prevented direct exports in the past
D) by reducing demand for home-country exports of capital equipment, intermediate
goods, and complementary products
75) What is double taxation in the context of FDI?
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A) taxation at twice the normal rate for foreign companies
B) taxing the producers as well as suppliers
C) taxation of income in both home and host country
D) taxation of both income as well as dividends paid
76) The two most common methods of restricting inward FDI are ownership restraints and
A) resource endowments.
B) performance requirements.
C) national sovereignty.
D) incentives.
77) Which of the following is a home-country policy aimed at restricting outward FDI flow?
A) taxing domestic companies’ foreign earnings at a higher rate than their domestic
earnings
B) implementation of government-backed insurance programs to cover major types of
foreign investment risk
C) eliminating double taxation of foreign income
D) persuading host countries to relax their restrictions on inbound FDI
78) _____ is essentially the service-industry version of licensing, although it normally
involves much longer-term commitments.
A) Franchising
B) Subsidizing
C) Greenfield investment
D) Patenting
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79) From the perspective of a firm negotiating the terms of an investment with a host
government, the firm’s bargaining power is high when the
A) firm has a short time in which to complete the negotiations.
B) host government places a high value on what the firm has to offer.
C) number of comparable alternatives open to the firm is low.
D) host government does not places a high value on the firm’s offering.
80) The _____ and Knickerbocker’s theory of FDI tend to be less useful from a business
perspective because they are descriptive rather than analytical.
A) noninterventionist theory
B) internalization theory
C) eclectic paradigm
D) product life-cycle theory
81) As transportation costs or trade barriers increase, exporting becomes unprofitable, and the
choice is between FDI and
A) subsidies.
B) incentives.
C) licensing.
D) resource endowments.
82) Licensing would be a good option for firms in which of the following industries?
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A) It would be a good option in high-technology industries in which protecting firm-
specific expertise is of paramount importance.
B) It would be a good option in global oligopolies, in which competitive
interdependence requires that multinational firms maintain tight control over foreign operations.
C) It would be a good option in industries in which intense cost pressures require that
multinational firms maintain tight control over foreign operations.
D) It would be a good option in fragmented, low-technology industries in which
globally dispersed manufacturing is not an option.
83) The amount of foreign direct investment (FDI) undertaken over a given time period is
known as the flow of FDI.
⊚ true
⊚ false
84) FDI has been declining in the last few decades because protectionist pressures have
become less intense.
⊚ true
⊚ false
85) Mergers and acquisitions are quicker to execute than greenfield investments.
⊚ true
⊚ false
86) Licensing involves the establishment of a new operation in a foreign country.
⊚ true
⊚ false
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87) By placing tariffs on imported goods, governments increases the cost of exporting
relative to foreign direct investment and licensing.
⊚ true
⊚ false
88) An oligopoly is an industry composed of a few large firms with somewhat equal market
share.
⊚ true
⊚ false
89) Rivals rarely imitate what a firm does in an oligopoly.
⊚ true
⊚ false
90) John Dunning pioneered the eclectic paradigm.
⊚ true
⊚ false
91) According to the radical view, the MNE is a tool for exploiting host countries to the
exclusive benefit of their capitalist-imperialist home countries.
⊚ true
⊚ false
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92) Countries adopting a pragmatic stance pursue policies designed to maximize the national
benefits and minimize the national costs.
⊚ true
⊚ false
93) Research supports the view that multinational firms often transfer significant technology
when they invest in a foreign country.
⊚ true
⊚ false
94) Indirect effects of FDI arise when jobs are created in local suppliers as a result of the FDI
and when jobs are created because of increased local spending by employees of the MNE.
⊚ true
⊚ false
95) Governments normally are concerned when their country is running a surplus on the
current account of their balance of payments.
⊚ true
⊚ false
96) In general, FDI in the form of greenfield investments should increase competition.
⊚ true
⊚ false
97) For the home country, the current account of the balance of payments improves if the
purpose of the foreign investment is to serve the home market from a low-cost production
location.
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⊚ true
⊚ false
98) Offshore production refers to FDI undertaken to serve the host market.
⊚ true
⊚ false
99) The WTO supports the promotion of international trade in services.
⊚ true
⊚ false
100) One way countries have encouraged firms to undertake FDI is through double taxation.
⊚ true
⊚ false
101) The British advanced corporation tax system taxed British companies’ foreign earnings at
a higher rate than their domestic earnings. This tax code created an incentive for British
companies to invest abroad.
⊚ true
⊚ false
102) Tax concessions, low-interest loans, and grants or subsidies are all incentives that
governments offer to foreign firms to invest in their countries.
⊚ true
⊚ false
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103) Licensing is usually a good option for firms in high-tech industries where protecting
firm-specific expertise is of paramount importance.
⊚ true
⊚ false
Answer Key
Test name: chapter 8
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