Multiple-Choice Questions on FDI

According to the provided lecture slides, what is a key characteristic that distinguishes foreign direct investment (FDI) from other types of international investment?

• It is always a merger or acquisition.

• It involves a short-term relationship between the investor and the foreign enterprise.

• It is an investment made by a resident enterprise in one economy with the objective of establishing a lasting interest in an enterprise resident in another economy.

• The ownership of the voting power is always less than 10%.

What is the minimum ownership stake in voting power that is typically taken as evidence of a "lasting interest" in a foreign direct investment?

• Less than 5%

• Exactly 100%

• 5% to 9.9%

• 10% or more

According to the provided slides, what is a multinational firm defined as?

• An enterprise that controls and manages at least one plant in a foreign country.

• An enterprise that only exports its products to other countries.

• An enterprise that controls and manages plants located in at least two countries.

• A firm that licenses its intellectual property to foreign companies.

In the context of FDI, what is the term for a brand-new production facility built by a firm in a foreign country?

• Merger

• Acquisition

• Joint venture

• Greenfield investment

A U.S.-based mobile phone company buying a chain of phone stores in China is an example of what type of FDI?

• Vertical FDI

• Horizontal FDI

• Conglomerate FDI

• Platform FDI

Vertical FDI is primarily aimed at what?

• Enlarging market access.

• Diversifying operations into an unrelated business.

• Obtaining lower-cost intermediate inputs and benefiting from differences in factor-costs across national borders.

• Expanding into a second country to export to a third country.

Which of the following describes a key characteristic of vertical FDI?

• It is more likely to arise between countries with similar factor prices.

• Trade and vertical FDI are typically substitutes.

• Firms can reduce their production costs by locating different parts of the production process in different countries.

• It is primarily driven by the proximity-concentration hypothesis.

FDI flows are recorded in which part of the balance of payments?

• The capital account.

• The current account.

• The trade balance.

• The financial account.

What are the three main components of FDI flows?

• Profits, dividends, and interest rates.

• Exports, imports, and services.

• Acquisition or disposal of equity capital, reinvestment of earnings, and inter-company debt.

• Stocks, bonds, and loans.

What is "FDI income" defined as?

• The total revenue of a foreign affiliate.

• A foreign investor's share in the earnings of its affiliates and net interest from intercompany debt.

• The total value of an FDI stock.

• The value of a company’s exports.