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1. FDI has been rising for all of the following reasons, excepta. There is a shift toward democratic political institutions and free

market economiesb. The general increase in trade barriers over the past 30 years. (m/s 242) (Decline)c. The globalization of the world economyd. Firms are trying to circumvent trade barriers

2. According to the _____ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.a. Radical (m/s 254)b. Conservativec. Imperialistd. Free market

3. FDI under taken to serve the home market is known asa. Home market FDIb. FDI substitutionc. Offshore production (m/s 262)d. Greenfield investment

4. FDI occurs when aa. Firm ships its product from one country to anotherb. Domestic firm imports products and services from another countryc. Firm invests in the stock of another companyd. Firm invests directly in facilities to produce and/or market a

product in a foreign country. (m/s 242)

5. If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of a. Outright stakeb. Majority acquisition (m/s 242)c. Greenfield investmentd. Minority acquisition

6. Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.a. Internationalization theoryb. Perfect markets theoryc. Internalization theory (m/s 250)d. Small markets theory

7. When two or more enterprises encounter each other in different regional markets, national markets or industries, there isa. Vertical integrationb. Multipoint competition (m/s 252)c. Monopolistic competitiond. Horizontal integration

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8. The amount of FDI undertaken over a given time period isa. The stock of FDIb. The FDI inflowc. The flow of FDI (m/s 242)d. The FDI outflow

9. In a licensing arrangement, the _____ bears the risk and cost of opening a foreign marketa. Licensorb. Greenfield investorc. Licensee (m/s 249)d. Acquiring firm

10. Which of the following is not a reason why firms prefer to acquire existing assets rather than undertake green-field investments?a. Foreign firms are acquired because those firms have valuable

strategic assetsb. Even though Greenfield investments are comparatively less

risky for a firm acquisitions always yield higher profits. (m/s 248)c. Mergers and acquisitions are quicker to execute than green-field

investmentsd. Firms make acquisitions because they believe they can increase the

efficiency of the acquired unit by transferring capital, technology or management skills

11. When jobs are created in local suppliers as a result of the FDI and when

jobs are created because of increased local spending by employees of the MNE, the MNE has a _____ effect on employment.a. Directb. Outwardc. Inwardd. Indirect (m/s 258)

12. The total amount of capital invested in factories, stores, office buildings and the like is summarized bya. Total investment capitalb. Gross fixed capital formation (m/s246)c. Total tangible investmentd. Gross depreciable investments

13. The _____ tracks the export and import of goods and services. A current account deficit or trade deficit as it is often called, arises when a country is importing more goods and services than it is exporting.

a. Surplus accountb. Capital accountc. Current account (m/s 259)d. Debit account

14. John Dunning, a champion of the eclectic paradigm, argues that

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a. Impediments to the sale of know-how increase the profitability of FDI relative to licensing

b. Combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI (m/s 253)

c. The firms that pioneer a product in their home markets undertake FDI to produce a product for consumption in a foreign market. (m/s 252) - argument by Raymond Vernon’s product life-cycle theory

d. When a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments

15. According to _____ international production should be distributed among countries according to the theory of comparative advantage.a. The eclectic viewb. Pragmatic nationalismc. The radical viewd. The free market view (m/s 255)

16. According to Knickerbockersa. Combining location-specific assets or resource endowments and the

firm's own unique assets often requires FDIb. Impediments to the sale of know-how increase the profitability of FDI

relative to licensingc. When a firm that is part of an oligopolistic industry expands into

a foreign market, other firms in the industry will be compelled to make similar investments (m/s 251)

d. The firms that pioneer a product in their home markets undertake FDI to produce a product for consumption in a foreign market

17. When a company brings capital and/or technology to a host country, the host country benefits from thea. The resource transfer effect of FDI (m/s 257)b. The balance of payments effect of FDIc. The effect on competition and economic growthd. Competitive effect of FDI

18. When strategic assets such as brand loyalty, customer relationships or distribution systems are important, _____ investments are more appropriate

a. Portfoliob. Merger and acquisitionc. New constructiond. Greenfield (m/s 248)

19. The largest source country for FDI since World War II has beena. Japanb. The United States (m/s 247)c. The United Kingdomd. China

20. A Greenfield investment

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a. Involves a 7 percent stock in an acquired foreign business entityb. Is a form of FDI that involves the establishment of a new

operation in a foreign country (m/s 242)c. Occurs when a firm acquires another company in a foreign countryd. Involves a merger with a foreign business

21. U.S. has been an attractive target for FDI because of all of the following reasons, except

a. Its dynamic and stable economyb. Its small (large) and wealthy domestic markets (m/s 244)c. Its openness to FDId. Its favorable political environment

22. The eclectic paradigm was developed bya. John Dunning (m/s 252)b. Adam Smithc. Raymond Vernond. F. T. Knickerbocker

23. Licensing would be a good option for firms in which of the following industriesa. Global oligopolies, in which competitive interdependence requires

that multinational firms maintain tight control over foreign operations the stock of FDI

b. Industries in which intense cost pressures require that multinational firms maintain tight control over foreign operations

c. High-technology industries in which protecting firm-specific expertise is of paramount importance and licensing is hazardous

d. In fragmented, low technology industries in which globally dispersed manufacturing is not an option. (m/s 267)

24. _____ is essentially the service industry version of licensing, although it normally involves much longer term commitments.

a. Patentingb. Subsidizingc. Franchising (m/s 267)d. Greenfield investment

25. Double taxation isa. Charging double taxes in the home countryb. Paying income taxes at twice the normal ratec. Charging double taxes in the host countryd. Taxation of income in both home and host country. (m/s 263)

26. The_____ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located

a. Eclectic paradigm (m/s 253)b. Strategic behavior theoryc. Multipoint competition theory

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d. Product life cycle

27. The U.S. has been an attractive target for FDI because of all of the following reasons, except

a. Greenfield restrictionsb. Double taxation lawsc. Performance requirementsd. Ownership restraints

28. In developing nations most FDI inflows are in the form ofa. Acquisitionsb. Greenfield investmentsc. Non-profit organizations(m/s 247)d. Mergers

29. The sector composition of FDI shows that by 2004 approximately _____ of FDI stock was in service industriesa. Two third(m/s 248)b. One third (m/s 247)c. Halfd. One fourth

30. Most cross-border investment isa. Between American and Japanese companiesb. Made via mergers and acquisitions (m/s 247)c. In the form of Greenfield investmentsd. Involved in building new facilities

31. Identify the incorrect statement regarding the direction of FDIa. The developed nations of the EU have received significant FDI

inflows. b. Historically, most FDI has been directed at the developing

nations of the worldc. Recent inflows into developing nations have been targeted at the

emerging economies of South, East and Southeast Asiad. During the 1980s and 1990s, the United States was often the favorite

target for FDI inflows

32. According to the internalization theory, all of the following are drawbacks of licensing as a strategy for exploiting foreign market opportunities, except

a. A firms capabilities such as the management, marketing and manufacturing are often not amenable to licensing

b. Licensing may result in a firm's giving away its know-how to a potential foreign competitor

c. Licensing does not grant control over manufacturing, marketing and to a licensee in return for a royalty fee. (m/s 250)

d. Licensing does not give the firm the tight control over manufacturing, marketing and strategy that may be required to profitably exploit its advantage

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33. A _____ keeps track of a country's payments to and its receipts from other countries

a. Federal payments ledgerb. Checks and balances accountc. Balance of payments account (m/s 259)d. Current accounting system

34. Which of the following is not a reason that the radical position of MNEs was in retreat by the end of the 1980s?

a. The strong economic performance of those developing countries that embraced capitalism rather than radical ideology

b. A growing belief in many capitalist countries that MNE's tightly controls key technology and that important job in the MNEs' foreign subsidiaries go to home-country nationals. (m/s 254)

c. The generally abysmal economic performance of those countries that embraced the radical position

d. The collapse of communism in Eastern Europe

35. Advantages that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets are known as

a. Competitive advantagesb. Resource specific advantagesc. Location specific advantages (m/s 253)d. Directional advantages

36. If four firms control 80 percent of a domestic market, then ______ existsa. Vertical integrationb. An oligopoly (m/s 251)c. An oligarchyd. A monopoly

37. The stock of FDI isa. The total accumulated value of foreign owned assets at a given

time (m/s 242)b. The amount of FDI undertaken over a given period of timec. The flow of FDI into a countryd. The flow of FDI out of a country

38. _____ involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold.

a. Vertical FDIb. Licensing (m/s249)c. Greenfield investmentd. Horizontal FDI

39. Three costs of FDI concerns of host countries arise from all of the following except

a. Adverse effects on the balance of payments

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b. Debit on the current account of the home country's balance of payments. (m/s 260)

c. The perceived loss of national sovereignty and autonomyd. Adverse effects on competition within the host nation

40. Historically, most FDI has been directed at the _____ nations of the world as firms based in advanced countries invested in

a. Underdeveloped, each other’s marketsb. Developed, each other’s markets (m/s 244)c. Developed, underdeveloped countriesd. Underdeveloped, underdeveloped countries

41. The product life cycle suggests thata. Impediments to the sale of know-how increase the profitability of FDI

relative to licensingb. Often the same firms that pioneer a product in their home

markets undertake FDI to produce a product for consumption in foreign markets. (m/s 252)

c. Combining location-specific assets or resource endowments and the firm’s own unique assets often requires FDI

d. When a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments

42. A distinctive aspect of _____ is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants

a. The radical viewb. The conservative viewc. The dogmatic viewd. Pragmatic nationalism (m/s 256)

43. Africa is not a popular destination for FDI because of all of the following reasons, except

a. Armed conflict in the regionb. Frequent policy changes in the regionc. Political unrest in the regiond. Liberalization of FDI regulations (m/s246)

44. ______ is also known as market imperfections theory.a. Perfect markets theoryb. Internationalization theoryc. Small markets theoryd. Internalization theory (m/s250)

45. _____ are controls over the behavior of the MNE’s local subsidiary.a. Performance requirements (m/s 264)b. Greenfield restrictionsc. Ownership restraints

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d. Double taxation laws

46. The rise in FDI in the services sector is a result of all of the following, except

a. Accelerating regulations of services. (m/s 248)b. Many countries have liberalized their regimes governing FDI in

servicesc. The general move in many developed countries away from

manufacturing and toward servicesd. Many services cannot be traded internationally

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