Exam 3

Question 1

Foreign direct investment (FDI)

Answer 1

occurs when a firm invests directly in new facilities to produce and/or market in a foreign country

Question 2

multinational enterprise

Answer 2

Once a firm undertakes FDI they become

Question 3

greenfield investment

Answer 3

the establishment of a wholly new operation in a foreign country

Question 4

flow of FDI

Answer 4

refers to the amount of FDI undertaken over a given time period

Question 5

stock of FDI

Answer 5

the total accumulated value of foreign-owned assets at a given time

Question 6

Outflows of FDI

Answer 6

the flows of FDI out of a country

Question 7

Inflows of FDI

Answer 7

the flows of FDI into a country

Question 8

increased over the last 20 years

Answer 8

Both the flow and stock of FDI in the world economy has

Question 9

Where is most FDI directed?

Answer 9

, most FDI has been directed at the developed nations of the world, with the U.S. being a favorite target

Question 10

What form does FDI take?

Answer 10

The majority of cross-border investment involves mergers and acquisitions rather than greenfield investments

Question 11

Acquisitions are attractive because

Answer 11

1. they are quicker to execute than greenfield investments
2. it is easier and less risky for a firm to acquire desired assets than build them from the ground up
3. firms believe they can increase the efficiency of an acquired unit by transferring capital, technology, or management skills

Question 12

There are several perspectives toward FDI:

The radical view

Answer 12

the MNE is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries

Question 13

There are several perspectives toward FDI:

The free market view

Answer 13

• international production should be distributed among countries according to the theory of comparative advantage

Question 14

The main benefits of inward FDI for a host country are

Answer 14

1. The resource transfer effect
2. The employment effect
3. The balance of payments effect
4. Effects on competition and economic growth

Question 15

There are three main costs of inward FDI

Answer 15

1. The possible adverse effects of FDI on competition within the host nation
2. Adverse effects on the balance of payments
3. The perceived loss of national sovereignty and autonomy

Question 16

The benefits of FDI to the home country include

Answer 16

1. The effect on the capital account of the home country’s balance of payments from the inward flow of foreign earnings
2. The employment effects that arise from outward FDI
3. The gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country

Question 17

The most important concerns for the home country center around

Answer 17

1. The balance-of-payments

2. Employment effects of outward FDI