Difficulty: Medium
7-4
Chapter 07 - Foreign Direct Investment
22. (p. 255) The free market view argues that FDI is a benefit to both the source country and to the host country. TRUE
Difficulty: Medium
23. (p. 255) Countries adopting a pragmatic stance pursue policies designed to maximize the national benefits and minimize the national costs. TRUE
Difficulty: Medium
4. (p. 242) The amount of FDI undertaken over a given time period is known as the flow of FDI. TRUE
Difficulty: Easy
5. (p. 242) The total accumulated value of foreign-owned assets at a given time is the inflow of FDI. FALSE
19. (p. 253) Dunning, in the eclectic paradigm theory, suggests that a firm must establish production facilities where foreign assets or resource endowments necessary to the production of the product exist. TRUE
Difficulty: Medium
7. (p. 244) Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in the others' markets. TRUE
Difficulty: Medium
25. (p. 257) Foreign direct investment can make a positive contribution to 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. TRUE
Difficulty: Easy
2. (p. 242) Licensing involves the establishment of a new operation in a foreign country. FALSE
Hale Waihona Puke Difficulty: Easy
3. (p. 242) If a firm that makes bicycles in Germany acquires a French bicycle producer, Greenfield investment has taken place. FALSE
Difficulty: Medium
7-5
Chapter 07 - Foreign Direct Investment
27. (p. 258) Jobs created in local suppliers as a result of the MNE's investment and jobs created because of increased local spending by employees of the MNE are examples of direct employment effects of FDI. FALSE
17. (p. 252) When two or more enterprises encounter each other in different regional markets, national markets or industries regional competition occurs. FALSE
Difficulty: Medium
8. (p. 246) The total amount of capital invested in factories, stores, office buildings and the like is referred to as the stock of FDI. FALSE
Difficulty: Hard
12. (p. 248) In 2004, about two thirds of FDI stock was in service industries. TRUE
Difficulty: Hard
13. (p. 249) As compared to exporting and licensing, FDI is the more expensive and risky. TRUE
Difficulty: Medium
20. (p. 254) Pragmatic nationalism traces its roots to Marxist political and economic theory. FALSE
Difficulty: Medium
21. (p. 254) Classical economics and the international trade theories of Adam Smith and David Ricardo form the basis for the free market view. TRUE
Difficulty: Easy
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Chapter 07 - Foreign Direct Investment
6. (p. 242) FDI is seen by executives as a means of circumventing future trade barriers. TRUE
Difficulty: Medium
18. (p. 252) According to Vernon, location specific advantages can help explain the nature and direction of FDI. FALSE
Difficulty: Hard
Difficulty: Medium
26. (p. 258) There is research supporting the view that multinational firms often transfer significant technology when they invest in a foreign country. TRUE
30. (p. 259) A current account deficit exists when a country imports more than it exports. TRUE
Difficulty: Easy
31. (p. 259) In recent years, the U.S. has run a persistent balance of payments surplus. FALSE
Difficulty: Medium
14. (p. 250) Internalization theory is also known as the market imperfections approach. TRUE
Difficulty: Medium
15. (p. 250) One of the problems of licensing is that it may result in a firm's giving away valuable technological know-how to a potential foreign competitor. TRUE
Chapter 07 - Foreign Direct Investment
True / False Questions
Chapter 07 Foreign Direct Investment
1. (p. 242) A firm becomes a multinational enterprise when it undertakes foreign direct investment. TRUE
Difficulty: Medium
16. (p. 251) An oligopoly is an industry composed of a limited number of large firms. TRUE
Difficulty: Easy
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Chapter 07 - Foreign Direct Investment
Difficulty: Medium
28. (p. 258) Host country citizens that are employed by an MNE following an FDI are an example of an indirect effect of FDI. FALSE
Difficulty: Medium
Difficulty: Easy