Module 7

Question 1

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

Answer 1

Foreign Direct Investment

Question 2

What happens once a firm undertakes FDI?

Answer 2

It becomes a multinational enterprise

Question 3

What are the two forms of FDI?

Answer 3

– A greenfield investment
– Acquisition or merging with an existing firm in the foreign country

Question 4

What do you call an FDI establishing a wholly
new operation in a foreign country?

Answer 4

Greenfield Investment

Question 5

What are the two ways to look at FDI?

Answer 5

1. Flow of FDI
2. Stock of FDI

Question 6

What do you call the amount of FDI undertaken over a given time period?

Answer 6

Flow of FDI

Question 7

What do you call the total accumulated value of foreign-owned assets at a given time?

Answer 7

Stock of FDI

Question 8

What do you call the flows of FDI out of a country?

Answer 8

Outflows of FDI

Question 9

What do you call the flows of FDI into a country?

Answer 9

Inflows of FDI

Question 10

Why do firms prefer to acquire existing assets?

Answer 10

• quicker to execute than
  greenfield investments
  – easier and perhaps less risky for a firm than build them from the ground up
  – firms believe they can increase the efficiency of an acquired unit by transferring capital, technology, or
  management skills