International Business Module 3 Quiz
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Questions and Answers

What does FDI stand for?

  • Foreign Domestic Investment
  • Foreign Debt Investment
  • Foreign Direct Investment (correct)
  • Financial Direct Investment

    • Inflows of FDI refer to foreign firms investing in the local country.

    True

    What is the primary difference between FDI and Foreign Portfolio Investment?

    FDI involves acquiring ownership and managing real assets, while Foreign Portfolio Investment involves buying financial instruments.

    FDI occurs when an investor from the _____ country acquires an asset in the _____ country.

    <p>home, host</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Stock of FDI = Total accumulated value of foreign-owned assets at a given time Outflows of FDI = Flow of FDI out of a country Inflows of FDI = Flow of FDI into a country Foreign Portfolio Investment = Investment in financial instruments in foreign markets</p> Signup and view all the answers

    Which of the following is an example of foreign direct investment?

    <p>Setting up a factory in another country</p> Signup and view all the answers

    Foreign Direct Investment is undertaken only by domestic companies.

    <p>False</p> Signup and view all the answers

    What is a characteristic of a multinational enterprise (MNE) in relation to FDI?

    <p>An MNE undertakes foreign direct investment by controlling production or operations in multiple countries.</p> Signup and view all the answers

    What is the main purpose of conglomerate FDI?

    <p>To seize emerging opportunities and capitalize on established networks</p> Signup and view all the answers

    Horizontal investment is aimed at reducing risk by sharing resources developed at home.

    <p>True</p> Signup and view all the answers

    What type of FDI is characterized by investments to improve efficiency and seek advantages?

    <p>Efficiency seeking</p> Signup and view all the answers

    The main aim of market-seeking FDI is to secure __________ shares and sales growth in target foreign markets.

    <p>market</p> Signup and view all the answers

    Match the type of FDI with its primary focus:

    <p>Horizontal FDI = Sharing resources and knowledge developed at home Market-seeking FDI = Protecting existing markets and counteracting competitors Efficiency-seeking FDI = Improving efficiency and seeking specialization Strategic asset seeking = Acquiring foreign assets that promote long-term objectives</p> Signup and view all the answers

    Which of the following statements about vertical FDI is correct?

    <p>It aims to provide resources for manufacturing products unrelated to the parent company.</p> Signup and view all the answers

    Efficiency seeking FDI is primarily focused on acquiring new markets.

    <p>False</p> Signup and view all the answers

    Name one advantage that Japanese MNEs see in starting their international expansion with horizontal investment.

    <p>It enables them to share experience and reduce risk.</p> Signup and view all the answers

    What is the primary difference between industrial and non-industrial FDI?

    <p>Industrial FDI provides inputs for domestic operations, while non-industrial FDI is for services.</p> Signup and view all the answers

    Backward vertical integration refers to investments aimed at selling a firm's domestic output abroad.

    <p>False</p> Signup and view all the answers

    What is an example of forward vertical integration?

    <p>Establishment of an assembly plant or a sales branch overseas.</p> Signup and view all the answers

    The strategy of combining two companies to form a new company is known as a __________.

    <p>merger</p> Signup and view all the answers

    Match the following entry modes with their descriptions:

    <p>International franchising = A direct investment aimed at providing inputs for production Equity joint venture = A partnership where two entities share ownership and control Wholly foreign-owned subsidiaries = Complete ownership of foreign operations by a firm Contractual alliances = Agreements between firms to collaborate without forming a new entity</p> Signup and view all the answers

    Which of the following is NOT a method of entry mode for FDI?

    <p>Divestment</p> Signup and view all the answers

    A greenfield investment involves acquiring an existing facility in a foreign country.

    <p>False</p> Signup and view all the answers

    What is the primary goal of backward vertical integration in FDI?

    <p>To provide inputs for a firm's production processes.</p> Signup and view all the answers

    Which of the following is NOT a benefit of Foreign Direct Investment (FDI) to host countries?

    <p>Loss of local ownership</p> Signup and view all the answers

    FDI can help host countries bridge foreign exchange gaps.

    <p>True</p> Signup and view all the answers

    What is a location advantage in the context of FDI?

    <p>The benefit arising from a host country's comparative advantage accrued to foreign direct investors.</p> Signup and view all the answers

    Foreign Direct Investment typically results in _________ generation in the host country.

    <p>employment</p> Signup and view all the answers

    Match the following FDI determinants with their descriptions:

    <p>Labor cost differentials = Variations in wage levels across countries Transportation costs = Expenses related to moving goods Tariff barriers = Taxes on imports Government policies = Regulations affecting foreign investment</p> Signup and view all the answers

    Which of the following is a common disadvantage of FDI for local businesses?

    <p>Fear of losing local ownership</p> Signup and view all the answers

    Increasing returns from ownership advantage is a determinant of FDI location choices.

    <p>True</p> Signup and view all the answers

    Name one way in which FDI can help in capital formation.

    <p>By bringing fresh capital into the host country.</p> Signup and view all the answers

    What is a primary benefit of Foreign Direct Investment (FDI) to a host country?

    <p>Job shifts to the host country</p> Signup and view all the answers

    FDI can provide local firms with the same favorable treatments as multinational enterprises (MNEs).

    <p>False</p> Signup and view all the answers

    What type of assets provide competitive advantages to multinational enterprises (MNEs)?

    <p>Intangible assets</p> Signup and view all the answers

    MNEs often capitalize on their core competencies to generate more __________ in the host country.

    <p>income</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Core competencies = Skills that competitors cannot easily imitate Organizational learning = A major source of competitive advantage Competitive advantages = Benefits derived from unique resources or knowledge Employment impact of FDI = Job shifts to the host country</p> Signup and view all the answers

    Which of the following is NOT a possible adverse impact of FDI on domestic enterprises?

    <p>Enhanced competition</p> Signup and view all the answers

    Successful multinational enterprises do not need to reinvest in building new resources.

    <p>False</p> Signup and view all the answers

    What organizational processes act as a building block for competitive advantages?

    <p>Organizational learning</p> Signup and view all the answers

    Study Notes

    Foreign Direct Investment (FDI) Overview

    • FDI represents the total accumulated value of foreign-owned assets at a given time.
    • It involves the flow of investment out of a country or into a country, where firms acquire assets to manage operations.
    • FDI can be characterized by investment in physical assets such as factories, unlike foreign portfolio investment which deals with financial instruments.

    Types of Foreign Direct Investment

    • Horizontal Investment: Companies expand internationally to replicate production or services, sharing resources and minimizing risks, e.g., Toyota's operations in Japan and the UK.
    • Conglomerate FDI: Firms invest in unrelated industries abroad to leverage established networks and seize emerging opportunities.
    • Vertical FDI: Direct investment to enhance production processes:
      • Backward Integration: Investment in raw materials or inputs.
      • Forward Integration: Investment to sell output of domestic production.

    FDI by Sector

    • Industrial FDI: Investment in the manufacturing sector by foreign firms to increase production capacity.
    • Non-industrial FDI: Investment in the services sector by foreign firms.

    Entry Modes for FDI

    • Firms choose different entry modes, including:
      • Branches and subsidiaries
      • International franchising
      • Equity joint ventures
      • Wholly foreign-owned subsidiaries
      • Greenfield investments involve building new facilities from scratch.

    FDI Motives

    • Resource Seeking: To gain access to essential resources.
    • Market Seeking: To capture market share and counter competitors.
    • Efficiency Seeking: To improve operational efficiency through specialization.
    • Strategic Asset Seeking: To acquire valuable foreign assets that align with long-term corporate objectives.

    Benefits of FDI to Host Countries

    • Access to advanced technology and increased competition can enhance domestic investment.
    • Influx of foreign capital can bridge foreign exchange gaps and boost the country's foreign exchange position.
    • Leads to employment generation and development of local capabilities through technology and management skills transfer.

    Disadvantages of FDI

    • Concerns among domestic companies regarding the loss of ownership and competitive edge.
    • Smaller companies may struggle against large multinational enterprises.
    • Job creation may favor machinery investment over local workforce wages.
    • Governments may have reduced control over operations managed by foreign corporations.

    Impact of FDI on Recipient Countries

    • FDI can lead to job shifts, potentially offering high-skilled positions, but may retain core competencies in the home country.
    • Domestic enterprises might suffer competitive disadvantages due to favorable treatment received by multinationals, leading to less competition.
    • MNEs' dominance could stifle local business development, impacting market dynamics and competition.

    Determinants of Location Choices for FDI

    • Factors influencing location decision include labor costs, transportation costs, tariffs and non-tariff barriers, and governmental policies affecting investment climate.

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    Related Documents

    Module 3: Foreign Direct Investment PDF

    Description

    Test your knowledge on Foreign Direct Investment (FDI) with this quiz. Explore concepts such as stock of FDI and outflows, and understand their implications for international trade. Ideal for students studying international business.

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