D080 Module 4: Relationships, Foreign Investment and Trade Quiz

Q2: What is a benefit for making a foreign direct investment (FDI)? A. An inflow of capital into the country chosen by the Chinese company will benefit the company. B. Profits will decrease for the Chinese company because it will avoid tariffs. C. The investment will increase the Chinese company's risk of doing business internationally. D. The country chosen by the Chinese company will increase jobs for local people.

D. The country chosen by the Chinese company will increase jobs for local people. A benefit of foreign direct investment is an increase in jobs for the country where the investment is made.

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A large Chinese furniture company is looking to move the production facility to offset high tariffs that have been placed on the import of furniture from China to the United States because the U.S. market is the largest consumer of furniture in the world. The strategy is to make a foreign direct investment into another country, such as the United States.

Q3: Which advantage will the company gain over other Chinese furniture companies if it becomes a multinational business through foreign direct investment? A. It will be able to avoid the tariffs that host countries have placed on furniture imports. B. There will be more risk of incurring higher costs in another country. C. It will be harder for them to exit the host country's market if sales begin to decrease. D. The company will be more competitive in the home country's furniture market.

A. It will be able to avoid the tariffs that host countries have placed on furniture imports. Because the U.S. has placed tariffs on furniture produced in China, moving production to another country that has lower tariffs or that is tariff free will benefit the company.

Q5: What is a drawback of the U.S. furniture company having its cut and sew operation in Mexico? A. The U.S. company may forgo trade with another company producing covers for less because they are not part of NAFTA. B. There are fewer opportunities to do business with multiple furniture companies in Mexico. C. The number of U.S. furniture companies in Mexico are lower because of NAFTA. D. There are three member countries in NAFTA, so it is more difficult for U.S. furniture companies to decide on policies.

A. The U.S. company may forgo trade with another company producing covers for less because they are not part of NAFTA. This drawback can lead to doing business with more expensive producers.

Q1: What is one option for the Chinese company to make a foreign direct investment (FDI)? A. Merge with an even larger China-based multinational company B. Create a joint venture with a furniture company in Indonesia C. Sell unfinished furniture to a company in Italy that will complete it D. Invest 5% in a furniture company in the US.

B. Create a joint venture with a furniture company in Indonesia A joint venture with a foreign company is an option for making a foreign direct investment.

Q6: Which economic benefit will result in the company's decision to move operations to the U.S. or Mexico? A. Protecting intellectual property B. Implementing a country of origin rule C. Eliminating tariffs and duties D. Increasing access to natural resources

C. Eliminating tariffs and duties If the Chinese company moved its operations to the U.S. or Mexico, it would result in the elimination of tariffs and duties due to the NAFTA regional integration and trading agreement that reduces trade barriers between those nations.

Q4: Which stage of regional economic integration is represented by the North American Free Trade Agreement (NAFTA) that benefits the U.S. furniture company's production of covers in Mexico? A. Trade union B. Common market C. Free trade area D. Customs union

C. Free trade area Free trade area the first stage of integration in which member countries try to remove trade barriers in that specific bloc. NAFTA is in the free trade area stage.

Q7: How will the Chinese company recognize that it is more profitable to operate business in the United States from a foreign currency exchange perspective? A. The foreign direct investment in Chinese currency is restricted. B. The dollar is weaker than the Chinese currency. C. The dollar is stronger than Chinese currency. D. The regional trade bloc adopts one currency.

C. The dollar is stronger than Chinese currency. A stronger U.S. dollar would mean that the Chinese company would receive more of its own currency in the exchange market, which would indicate that the market for the Chinese furniture in the U.S. would be more profitable and more favorable.