Session 3 Flashcards
Which kinds of international investment exist?
- foreign portfolio investment (FPI)
- foreign direct investment (FDI)
What is foreign portfolio investment?
investment in a portfolio of foreign securities such as stocks and bonds that don’t entail the active management of foreign assets
FPI is ‘foreign indirect investment’
What is foreign direct investment?
equity stake of 10% or more in a foreign-based enterprise
What is a horizontal FDI?
duplicates its home country-based activities at the same value chain stage in a host country
What is a vertical FDI?
FDI moves in different value chain stages in a host country
Which kind of vertical FDI exist?
upstream and downstream FDI
What is the goal of a multinational enterprise (MNE)?
firm that engages in FDI
What does a multinational enterprise (MNE) also do?
- ) exporting and importing
- ) licensing and franchising
- ) outsourcing
- ) engaging in FPI or other means
Why do firms engage in FDI?
- ) ownership advantages (O-advantage)
- ) locational advantage (L-advantage)
- ) internalization advantage (I-advantage)
- -> OLI paradigm
What is licensing?
if a firm has an agreement with another firm to use their proprietary technology or trademark for royalty fee paid
What is dissemination risk?
unauthorized diffusion of firm-specific know-how
What is the exchange rate?
the price of one currency in another currency
What is the currency exchange market?
market where everybody buy and sell foreign currencies
By which factors currencies are influenced?
- political
- economic
- psychological
- relative price differences
- inflation and monetary supply
- interest rates
- productivity
- balance of payment
- investor psychology
What is the purchasing power parity (PPP) hypothesis?
‘law of one price’
