Foreign Direct Investment: Definition, Types, and Impact on Global Economy

Question 1

Which of these is NOT a typical characteristic of a greenfield investment?

Accepted Answer

Buying an existing company

Answer

Building a new factory

Question 2

How does foreign direct investment (FDI) affect the social and cultural aspects of both the investing and host countries? Consider its impact on cultural identity, values, and social structures.

Accepted Answer

The social and cultural effects of FDI are complex and require careful consideration by both investing and host countries.

Answer

FDI only benefits the host country by bringing new technologies and economic opportunities.

Answer

FDI always leads to the host country adopting foreign cultures, resulting in a loss of its own cultural identity.

Answer

FDI should be strictly controlled to avoid disrupting traditional social structures and values.

Question 3

Which of the following is NOT a type of foreign direct investment (FDI)?

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 4

What is the concept of 'spillover effects' in FDI?

Accepted Answer

Positive externalities that benefit non-FDI firms

Answer

Negative externalities that harm non-FDI firms

Answer

Government subsidies provided to FDI projects

Answer

Tax breaks granted to FDI companies

Question 5

Which of the following is a measure of the level of FDI restrictiveness in a country?

Accepted Answer

FDI restrictiveness index

Answer

FDI inward stock

Answer

FDI outward stock

Answer

World Bank ease of doing business ranking

Question 6

What is the impact of FDI on the global economy?

Accepted Answer

Increased economic interdependence

Answer

Greater global income inequality

Answer

Weakening of national sovereignty

Answer

Loss of cultural diversity

Question 7

Which of the following is NOT a type of foreign direct investment (FDI)?

Accepted Answer

Foreign portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 8

What is the primary motivation for a company to engage in outward FDI?

Accepted Answer

To access new markets and expand their customer base

Answer

To reduce production costs and increase efficiency

Answer

To acquire new technologies and innovations

Answer

To diversify risk and mitigate potential losses

Question 9

Which of the following is a characteristic of greenfield investment?

Accepted Answer

Establishment of a new production facility or subsidiary from the ground up

Answer

Acquisition of an existing company or assets

Answer

Partnership with a local company through joint venture or strategic alliance

Answer

Investment in stocks, bonds, or other financial instruments

Question 10

What is the difference between FDI and portfolio investment?

Accepted Answer

FDI involves direct ownership and control of foreign assets, while portfolio investment does not.

Answer

Portfolio investment involves direct ownership and control of foreign assets, while FDI does not.

Answer

Both FDI and portfolio investment involve direct ownership and control of foreign assets.

Answer

Neither FDI nor portfolio investment involves direct ownership and control of foreign assets.

Question 11

Which of the following is a potential benefit, rather than a risk or challenge, associated with foreign direct investment (FDI)?

Accepted Answer

Increased exports from the host country

Answer

Political instability

Answer

Economic downturns

Answer

Cultural differences

Question 12

Which type of foreign direct investment involves the creation of a new subsidiary in the host country?

Accepted Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Answer

Portfolio investment

Question 13

Which of the following is NOT a potential benefit of FDI for the host country?

Accepted Answer

Increased pollution

Answer

Job creation

Answer

Increased investment in infrastructure

Answer

Technology transfer

Question 14

Which country is the largest recipient of foreign direct investment in the world?

Accepted Answer

China

Answer

United States

Answer

United Kingdom

Answer

Japan

Question 15

How does foreign direct investment (FDI) affect global trade patterns?

Accepted Answer

FDI can increase demand for domestic exports by boosting production, leading to more goods available for export.

Answer

FDI does not directly influence international trade policies like tariffs or trade barriers.

Answer

FDI does not reduce the cost of imported goods from other countries.

Question 16

Government policies play a crucial role in attracting and managing Foreign Direct Investment (FDI). Evaluate the effectiveness of such policies, considering the benefits and challenges involved in their implementation.

Accepted Answer

Governments should adopt a balanced approach, using both incentives and regulations to attract and manage FDI.

Answer

Governments should offer incentives to attract FDI, but avoid implementing regulations.

Answer

Governments should focus solely on regulating FDI to avoid any potential negative impacts, even if it means missing out on potential benefits.

Answer

Governments should take a hands-off approach and let market forces determine the flow of FDI without any intervention or regulation.

Question 17

Which of the following is NOT a recognized type of foreign direct investment (FDI)?

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 18

Portfolio investment is categorized as which type of financial transaction?

Accepted Answer

Indirect investment

Answer

Equity investment

Answer

Foreign direct investment

Answer

Direct investment

Question 19

What is the primary characteristic of a multinational corporation (MNC)?

Accepted Answer

Operations in multiple countries

Answer

Owned by multiple governments

Answer

Focus on foreign direct investment

Answer

No domestic operations

Question 20

How does an FDI restrictiveness index measure a country's policies on foreign direct investment?

Accepted Answer

It quantifies the extent to which a country restricts foreign direct investment.

Answer

It measures the total amount of FDI inflows into a country.

Answer

It's the same as a foreign investment promotion index.

Answer

It's not a useful tool for policymakers.

Question 21

Which of the following is NOT a type of foreign direct investment (FDI)?

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 22

Identify the option that is NOT a type of Foreign Direct Investment (FDI).

Accepted Answer

Portfolio investment (investing in stocks and bonds of a foreign company)

Answer

Greenfield investment (establishing a new business in a foreign country)

Answer

Mergers and acquisitions (acquiring an existing business in a foreign country)

Question 23

What is a distinguishing feature of greenfield FDI?

Accepted Answer

Establishing a new business in a foreign country

Answer

Acquiring an existing business in a foreign country

Answer

Investing in stocks and bonds of a foreign company

Answer

Entering into a joint venture with a foreign company

Question 24

How do international organizations, such as the World Bank and UNCTAD, contribute to the management of foreign direct investment (FDI)?

Accepted Answer

International organizations play a significant role in setting standards, providing technical assistance, and resolving disputes related to FDI.

Answer

International organizations only promote FDI and do not regulate it.

Answer

International organizations only regulate FDI and do not promote it.

Answer

International organizations play a limited role in FDI, mainly providing technical support.

Question 25

True or False: FDI always leads to positive economic growth in the host country.

Accepted Answer

False

Answer

True

Question 26

True or False: Foreign direct investment is a zero-sum game, where one country's gain is another country's loss.

Accepted Answer

False

Answer

True

Question 27

Define Foreign Direct Investment: (Choose the most precise definition)

Accepted Answer

An investment where a company establishes a long-term presence and substantial control over a foreign entity

Answer

An investment made by a government to support foreign development projects

Answer

An investment that involves buying stocks and bonds of foreign companies

Question 28

Which of the following is NOT a type of FDI?

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 29

Identify the primary motivation for companies to undertake FDI:

Accepted Answer

To gain access to new markets

Answer

To avoid domestic regulations

Answer

To reduce production costs

Answer

To acquire cheap labor

Question 30

What potential economic benefit can FDI bring to host countries?

Accepted Answer

Job creation

Answer

Political instability

Answer

Increased environmental pollution

Answer

Exploitation of natural resources

Question 31

How does FDI contribute to the global economy?

Accepted Answer

It promotes international trade, investment flows, and economic growth

Answer

It eliminates national borders and creates a single global market

Answer

It reduces global income inequality

Question 32

Distinguish between greenfield investment and mergers and acquisitions in FDI:

Accepted Answer

Greenfield investment involves creating a new business operation, while M&A involves acquiring or merging with an existing one

Answer

Greenfield investment is always made in developing countries, while M&A is common in developed countries

Question 33

Identify a potential challenge associated with FDI for investing companies:

Accepted Answer

Political instability in the host country

Answer

Low labor costs in the host country

Answer

Access to natural resources in the host country

Answer

Favorable tax policies in the host country

Question 34

How can host countries maximize the benefits of FDI while minimizing its negative impacts?

Accepted Answer

By implementing appropriate regulations and policies

Answer

By relying only on domestic investment and trade

Answer

By banning all foreign investment

Question 35

Explain the significance of FDI in promoting economic development:

Accepted Answer

It provides access to capital, technology, and expertise, fostering job creation and economic growth

Answer

It guarantees immediate economic prosperity without any challenges

Answer

It eliminates the need for domestic savings and investment

Question 36

Which of the following is a potential benefit of FDI for host countries?

Accepted Answer

Job creation

Answer

Increased pollution

Answer

Heightened inflation

Answer

Dependence on foreign companies

Question 37

What is the primary role of government in regulating foreign direct investment?

Accepted Answer

To balance economic benefits and national security interests

Answer

To encourage all forms of FDI without restrictions

Answer

To prevent any foreign investment altogether

Question 38

How does FDI contribute to the global economy?

Accepted Answer

By increasing trade and capital flows

Answer

By eliminating international conflict

Answer

By reducing the environmental footprint of corporations

Answer

By reducing global income inequality

Question 39

Which of the following is a potential challenge associated with foreign direct investment?

Accepted Answer

Cultural differences

Answer

Increased economic growth

Answer

Reduced corruption

Answer

Improved infrastructure

Question 40

What is the difference between greenfield investment and brownfield investment?

Accepted Answer

Greenfield investment involves creating a new facility, while brownfield investment involves expanding an existing facility.

Answer

Greenfield investment is only found in developing countries, while brownfield investment is found in developed countries.

Question 41

How does FDI differ from foreign portfolio investment?

Accepted Answer

FDI involves long-term control over foreign assets, while foreign portfolio investment does not.

Answer

Foreign portfolio investment is only found in developed countries.

Answer

FDI is always more profitable than foreign portfolio investment.

Question 42

What is a multinational corporation (MNC)?

Accepted Answer

A company that operates in multiple countries and has a global presence.

Answer

A company that is owned by multiple governments.

Answer

A company that specializes in foreign direct investment.

Question 43

Which of the following is NOT a typical motivation for a company to make a foreign direct investment (FDI)?

Accepted Answer

To avoid paying taxes in the home country.

Answer

To reduce transportation costs and improve supply chains.

Answer

To gain access to cheaper labor and resources.

Answer

To access new markets and customers.

Question 44

A company building a new manufacturing plant in a foreign country is an example of which type of FDI?

Accepted Answer

Greenfield investment

Answer

Portfolio investment

Answer

Mergers and acquisitions

Answer

Joint venture

Question 45

Which of the following is a potential benefit of FDI for the host country?

Accepted Answer

Increased employment opportunities

Answer

Environmental damage

Answer

Loss of control over domestic industries

Answer

Increased dependence on foreign companies

Question 46

A company that invests in a foreign country primarily to access cheaper labor is likely motivated by:

Accepted Answer

Cost reduction

Answer

Efficiency seeking

Answer

Market seeking

Answer

Resource seeking

Question 47

Which of the following is NOT a common barrier to FDI?

Accepted Answer

Favorable tax incentives

Answer

Corruption

Answer

Lack of infrastructure

Answer

Political instability

Question 48

A company acquiring an existing business in a foreign country is an example of:

Accepted Answer

Mergers and acquisitions

Answer

Portfolio investment

Answer

Greenfield investment

Answer

Joint venture

Question 49

The World Investment Report, published by UNCTAD, is a primary source of information on:

Accepted Answer

Global FDI trends and statistics

Answer

International trade regulations

Answer

Environmental impact of globalization

Answer

Economic growth forecasts

Question 50

Which of the following is a potential negative impact of FDI on the investing country?

Accepted Answer

Job losses in domestic industries

Answer

Improved access to new markets

Answer

Technology transfer

Answer

Increased economic growth

Question 51

A joint venture between a foreign company and a local company in a foreign country is an example of:

Accepted Answer

FDI involving shared ownership and control

Answer

A form of portfolio investment

Answer

A purely domestic investment

Answer

A greenfield investment