Chapter 8: Foreign Direct Investment

c. Balance-of-payments

A country's ____________ accounts track the country's payments to and receipts from other countries. a. Balance-of-trade b. Balance-of-debt c. Balance-of-payments d. Balance-of-financing

c. Capital

A key cost of FDI for the home country is when the balance of payments are adversely affected by the initial _________ outflow that is necessary to finance FDI. a. Stock b. Resource c. Capital d. Inventory

a. Political influence.

A number of investor countries try to encourage FDI through the use of a. Political influence. b. Monetary policy. c. Increased tariffs. d. Domestic subsidies.

a. Oligopoly

A(n) ______________ is an industry made up of a limited number of large firms where there is an interdependence of the major players. a. Oligopoly b. Corporation c. Monopoly d. Locality

a. Foreign Direct Investment

Bethany's company holds valuable know-how in the electronics industry and the company realizes this knowledge cannot be adequately protected. In this situation, what would be more profitable for Bethany's company? a. Foreign Direct Investment b. An embargo c. Licensing d. Purchasing Power Parity

c. The licensee bears the cost and risk of developing the market. Explanation: An advantage of licensing to a foreign company is that the licensee bears the cost and risk of developing the foreign market.

Burberry originally entered Japan via a licensing contract with a Japanese retailer. A key advantage of this type of strategy is that a. The licensor avoids product development risks. b. The licensee avoids all tariffs. c. The licensee bears the cost and risk of developing the market. d. The licensee gains control of the brand.

c. A greenfield investment. Explanation:A greenfield investment involves the establishment of new operation in a foreign country.

Burberry's current investment in Japan can best be characterized as a. A cross border acquisition. b. A joint venture. c. A greenfield investment. d. A cross border merger.

b. Foreign direct investment

Establishing a new operation in a foreign market and acquiring or merging with a foreign business are examples of ______________________. a. Tragedy of the commons. b. Foreign direct investment c. Comparative advantage d. Purchasing power parity

b. Offshore

FDI that is pursued to serve the home market is called ________________________ production. a. Option b. Offshore c. Online d. Outbound

d. Licensing

Grant's company has given a company in Japan the right to produce and sell its line of active wear. For every article of clothing the Japanese company sells, it pays Grant's company a fee. This is an example of __________________. a. An acquisition b. Franchising c. Exporting d. Licensing

a. Lower, increase

Greenfield investing spurs competition by increasing the number of players in a market and this will tend to ___________ prices and _________________ economic welfare. a. Lower, increase b. Increase, increase c. Lower, lower d. Increase, lower

c. Services

The World Trade Organization has based the majority of its efforts on pushing for the liberalization of regulations governing _______________. a. Licensees b. Franchisees c. Services d. Products

d. Current

The ____ account tracks goods and services exports and imports in balance-of-payments accounting. a. Production b. Exchange rate c. Payments d. Current

b. Free market

The ___________ view of FDI states that international production should be allocated based on the theory of comparative advantage. a. Open market b. Free market c. Fair market d. Closed market

d. Eclectic paradigm

The ___________________ combines the various perspectives of foreign direct investment into a holistic theory. a. Difference principle b. Tragedy of the commons c. Flow of FDI d. Eclectic paradigm

d. Multinational

The basis in Marxist politics is evident when radical writers argue that ______________ enterprises are an instrument of imperialist domination. a. Home-country b. Entrepreneurial c. Expatriate d. Multinational

c. Licensing

The limits of ______________ include giving away valuable know-how to competitors and losing control over marketing, production, and strategy. a. Exporting b. Importing c. Licensing d. Acquisitions

d. Sell off assets to foreigners.

The only way a country can support a current account deficit, also known as a trade deficit, in the long-run is _________________. a. Obtain a loan from a subsidiary b. Making licensing agreements c. File for bankruptcy d. Sell off assets to foreigners.

a. Multinational enterprises

The radical view toward FDI argues that _____________ extract profits from the host country and take them back to their home country. a. Multinational enterprises b. Exporters c. Domestic firms d. Federal governments

a. Accumulated value of foreign-owned assets at a given point in time

The stock of foreign direct investment refers to the total ____________________________. a. Accumulated value of foreign-owned assets at a given point in time b. Amount of foreign investment made in manufacturing c. Amount of imports into the country Amount of FDI undertaken over a year

c. Pattern

The various theories of FDI try to explain the _______________ of FDI flows, which deals with why certain locations are favored as targets of FDI. a. Beliefs b. Cost c. Pattern d. Consequence

d. Greenfield investment.

The world flow of foreign direct investment between 1990 and 2017 increased 600 percent. If a company decides to establish a new operation in a foreign country, that company has engaged in a. An acquisition. b. A merger. c. A franchise arrangement. d. Greenfield investment.

c. Toyota is concerned that its ability to export from Japan could be compromised by U.S. tariffs and quotas.

Toyota produces 1.2 million vehicles per year in the United States. Which best explains why Toyota has chosen to produce its vehicles in the United States rather than exporting from Japan? a. Toyota is trying to avoid Japanese competitors like Nissan and Honda by selling in the United States. b. Toyota feels that production in China would damage its reputation for quality. c. Toyota is concerned that its ability to export from Japan could be compromised by U.S. tariffs and quotas. d. Toyota believes that designing its vehicles in Japan is the main way generate profits.

d. Invest directly in target markets.

Toyota's $25 billion investment in the U.S. market indicates that the Japanese company believes that the United States is a strategically important market. When considering future international expansion, if Toyota has valuable know-how that cannot be protected with a licensing contract and also faces high transportation costs, Toyota should a. Consider a less popular vehicle. b. Outsource all production. c. Export from Japan. d. Invest directly in target markets.

True Reason: The forestry is tied to the Brazil plant and the US plant combined its assets with that plant to create FDI.

True or False: Jim's US-based paper products company sources paper from a plant in Brazil that takes advantage of the available forestry near the plant. This is an example of a location-specific advantage.

False

True or False: When FDI occurs through greenfield investment, this will lower competition in a market and decrease economic welfare.

a. United States

What country has been the largest source of FDI since World War II? a. United States b. United Kingdom c. China d. France

a. WTO

What international organization is involved in the governing of FDI? a. WTO b. IMF c. NATO d. UN

a. Location-specific

What name is given to the advantages that coincide with utilizing resource endowments or assets tied to a specific area? a. Location-specific b. Asset-specific c. Endowment-specific d. Resource-specific

c. Exporting

When a company produces a good in the home country and then ships it to another country for sale it is called _______________. a. Licensing b. Forecasting c. Exporting d. Importing

c. FDI

When a firm invests directly in a foreign market to produce or market a product, it is called _________. a. IMF b. JIT c. FDI d. WTO

b. United States

Which country was a favorite target for FDI inflows during the 1980s and 1990s? a. Argentina b. United States c. Japan d. China

b. FDI may be accompanied by some loss of economic independence.

Which of the following is not a potential benefit to Japan from Burberry's decision to invest in the country? a. FDI brings jobs to a host country that would otherwise not be created there. b. FDI may be accompanied by some loss of economic independence. c. FDI may lead to increased productivity growth, product and process innovations, and greater economic growth. d. Foreign management skills acquired through FDI may also produce important benefits for the host country.

a. A product that can be produced almost anywhere

Which of these factors creates a limitation to exporting? a. A product that can be produced almost anywhere b. A product that can be produced by one company c. Minimal trade barriers d. Low transportation costs

b. Free market

Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage? a. Absolute market b. Free market c. Biased market d. Fair market

d. Pragmatic nationalism

Which view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI? a. Pragmatic free markets b. Pragmatic radicalism c. Radical nationalism d. Pragmatic nationalism

b. Licensing

______________ allows a company to collect a royalty fee from a foreign firm that it has granted the right to produce and sell its product. a. An acquisition b. Licensing c. A greenfield venture d. Franchising

d. Exporting

Kimberly's company produces body lotion in the United States and ships it overseas to retail stores that sell the product. Her company is delivering product through _______________________. a. Franchising b. Licensing c. Direct sales d. Exporting

b. Lower prices for goods

One potential benefit to consumers related to offshore production is ________________________. a. Better products b. Lower prices for goods c. Constant supply of goods d. No taxes on purchases

d. Developed nations

Past activity of FDI shows that the majority of it has been directed at __________________________. a. Developing nations b. Greenfield markets c. Domestic markets d. Developed nations

d. New jobs in Japan are created to facilitate U.S. investment. Effect on host country: employment effect. Explanation: Action: New jobs in Japan are created to facilitate U.S. investment. Effect on the host country: employment effect. Employment effects refer to the jobs FDI to a host country that would otherwise not be created there. Resource transfer effects refer to the positive contributions FDI can have for a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate. Competition effects refers to benefits such as productivity growth, product and process innovations, and greater economic growth that result from increased competition.

According to the video, Japan's Toyota has invested $25 billion in production facilities in the United States. Which is not a correct match between an action occurring because of Toyota's investment in the United States and the effect on the host country? a. Toyota creates new competition with its line of electric vehicles. Effect on host country: competition effect. b. Toyota's managers bring new management skills to the United states. Effect on host country: resource transfer effect. c. New jobs are created at Toyota's U.S. facilities. Effect on host country: employment transfer effect d. New jobs in Japan are created to facilitate U.S. investment. Effect on host country: employment effect.

b. Licensing does not include the competitive advantage based on the management and manufacturing capabilities that separate the product from competition.

After licensing its brand in Japan for a number of years, Burberry decided to open its own stores in the country. Which disadvantage of licensing best explains Burberry's decision to end its licensing agreements in Japan? a. Licensing may result in a firm's giving away valuable technological know-how to potential foreign competitor. b. Licensing does not include the competitive advantage based on the management and manufacturing capabilities that separate the product from competition. c. Licensing does not give a firm the tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability. d. Licensing does not capture the competitive advantage in management and organizational capabilities required to capture the advantages of lean production.

d. Pragmatic nationalism

Pre-1980, Japan blocked the majority of potential foreign investments. Yet, if a company that had cutting edge technology wanted to invest in Japan, they were allowed to undertake FDI. This is an example of ____________________. a. First-mover advantages b. Tragedy of the commons c. Isolationism d. Pragmatic nationalism

b. The flow of FDI has accelerated faster than the growth in world trade.

How has the flow of FDI compared to the growth in world trade since 1990? a. The flow of FDI has been slower than the growth in world trade. b. The flow of FDI has accelerated faster than the growth in world trade. c. The flow of FDI and the growth in world trade have been equal.

b. Foreign Direct Investment

In 2015, Burberry, the British luxury apparel company, opened a limited number of wholly owned stores in Japan with a goal of having 35 to 50 stores by 2018. Burberry's stores in Japan can best be described as a. A way to lower prices. b. Foreign Direct Investment c. A last-ditch attempt to capture the market. d. An effective mechanism top encourage brand status.

d. Licensing

Internalization theory tries to explain why firms often prefer FDI over __________________ as a method for getting into foreign markets. a. Franchising b. Parity c. Importing d. Licensing