Foreign Direct Investment: Types, Advantages, and Factors Influencing Decisions

Question 1

Identify the investment type that is NOT a form of foreign direct investment (FDI):

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 2

Which of the following is a key advantage associated with greenfield investment?

Accepted Answer

Full control over operations

Answer

Lower risk exposure

Answer

Access to established markets

Answer

Reduced labor expenses

Question 3

What is a primary benefit of foreign direct investment (FDI) for host nations?

Accepted Answer

Increased exports and job opportunities

Answer

Lower government income

Answer

Loss of control over domestic industries

Answer

Environmental damage

Question 4

Which of the following is NOT a primary type of FDI?

Accepted Answer

Cross-border mergers

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 5

What is a key advantage of greenfield investment?

Accepted Answer

Allows for custom operations design

Answer

Leverages existing assets

Answer

Reduces risk by partnering with a local firm

Answer

Provides immediate access to a foreign market

Question 6

What is a potential downside of investing in a country with rigid labor laws?

Accepted Answer

Reduced flexibility in managing workforce

Answer

Increased production costs

Answer

Legal barriers to entry

Answer

Difficulty in obtaining necessary permits

Question 7

What is the primary function of the UNCTAD World Investment Report?

Accepted Answer

Provides comprehensive data and analysis on FDI trends

Answer

Sets global FDI standards

Answer

Negotiates bilateral investment treaties

Answer

Resolves disputes between MNEs and host governments

Question 8

Which of the following factors is not typically considered by businesses when making FDI decisions?

Accepted Answer

Personal preferences of executives

Answer

Political stability

Answer

Labor market conditions

Answer

Exchange rate fluctuations

Question 9

What is the key difference between inward FDI and outward FDI?

Accepted Answer

Inward FDI involves foreign companies investing domestically, while outward FDI involves domestic companies investing abroad.

Answer

Inward FDI involves domestic companies investing abroad, while outward FDI involves foreign companies investing domestically.

Answer

Inward FDI refers to investments made in a company's home country, while outward FDI refers to investments made in a foreign country.

Answer

There is no significant difference between inward and outward FDI.

Question 10

Which of the following is a defining characteristic of a joint venture?

Accepted Answer

Shared ownership and control between multiple companies

Answer

Complete ownership and control by a single company

Answer

Limited liability for individual investors

Answer

Absence of any formal legal structure

Question 11

What is the primary role of the World Bank in the context of FDI?

Accepted Answer

Providing financial assistance and investment guarantees

Answer

Negotiating international trade agreements

Answer

Enforcing international investment laws and regulations

Answer

Conducting research and providing data on FDI trends

Question 12

What is the main purpose of the Foreign Corrupt Practices Act (FCPA)?

Accepted Answer

To prohibit bribery of foreign government officials

Answer

To prevent unfair competition in international trade

Answer

To protect intellectual property rights globally

Answer

To regulate the flow of foreign investments

Question 13

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

Accepted Answer

Portfolio investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 14

What is the main advantage of greenfield investment?

Accepted Answer

Greater control over operations

Answer

Lower costs

Answer

Access to existing distribution channels

Answer

Reduced political risk

Question 15

How does the United Nations Conference on Trade and Development (UNCTAD) regulate foreign direct investment (FDI)?

Accepted Answer

Through voluntary guidelines

Answer

Through legally binding treaties

Answer

Through dispute resolution mechanisms

Answer

It does not regulate foreign direct investment

Question 16

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

Accepted Answer

Equity financing

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 17

A key advantage of greenfield investments for multinational corporations (MNCs) is:

Accepted Answer

Greater control over operations

Answer

Access to low-cost labor

Answer

Reduced political risk

Answer

Immediate access to established distribution networks

Question 18

Which of the following is NOT a significant factor influencing FDI inflows into a country?

Accepted Answer

Abundance of natural resources

Answer

Political stability and rule of law

Answer

Availability of skilled labor

Answer

Favorable tax policies

Question 19

Export-oriented FDI is primarily driven by the objective of:

Accepted Answer

Accessing new markets for products and services

Answer

Reducing production costs and increasing efficiency

Answer

Acquiring advanced technologies and knowledge

Answer

Diversifying revenue streams and mitigating risks

Question 20

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

Accepted Answer

Foreign Portfolio Investment

Answer

Greenfield investment

Answer

Mergers and acquisitions

Answer

Joint ventures

Question 21

What is a key advantage of greenfield investment?

Accepted Answer

Complete control over operations

Answer

Lower cost of entry compared to acquisitions

Answer

Access to existing distribution channels

Answer

Reduced political risk

Question 22

Which US government body is responsible for reviewing and regulating foreign direct investment?

Accepted Answer

Committee on Foreign Investment in the United States (CFIUS)

Answer

Securities and Exchange Commission (SEC)

Answer

Federal Reserve

Answer

Department of Commerce

Question 23

Which region of the world receives the most foreign direct investment (FDI) and why?

Accepted Answer

Developed economies due to their strong economies, political stability, and skilled workforce

Answer

Low-income countries due to their abundant natural resources

Answer

All regions of the world receive equal amounts of FDI due to similar economic conditions

Question 24

What is a potential drawback of foreign direct investment (FDI)?

Accepted Answer

Loss of control over domestic industries

Answer

Increased economic growth

Answer

Reduced unemployment

Answer

Increased export opportunities

Question 25

What is a potential drawback of foreign direct investment (FDI) for the countries receiving it?

Accepted Answer

Loss of economic autonomy

Answer

Increased job opportunities

Answer

Upgraded infrastructure

Answer

Higher government income

Question 26

Identify the mode of foreign direct investment (FDI) that does NOT involve direct ownership or control of the investment.

Accepted Answer

Portfolio investment

Answer

Joint ventures

Answer

Mergers and acquisitions

Answer

Greenfield investment

Question 27

What is the key advantage of greenfield investment for multinational corporations (MNCs)?

Accepted Answer

Establishing wholly-owned subsidiaries with complete control over operations

Answer

Lowering operating costs significantly

Answer

Gaining quick access to new markets without significant capital outlay

Answer

Minimizing financial risks associated with the investment

Question 28

How does foreign direct investment (FDI) differ primarily from portfolio investment?

Accepted Answer

FDI implies a significant level of managerial control over the acquired assets or operations

Answer

FDI involves higher capital investment compared to portfolio investment

Answer

FDI is typically more short-term in nature than portfolio investment

Answer

FDI is less regulated and monitored by government authorities

Question 29

Which term describes the relocation of production facilities to another country primarily to take advantage of lower labor costs?

Accepted Answer

Offshoring

Answer

Outsourcing

Answer

Relocation

Answer

Globalization

Question 30

What is a primary goal of government policies on foreign direct investment (FDI)?

Accepted Answer

To attract and regulate FDI inflows and outflows

Answer

To expropriate foreign-owned assets without compensation

Answer

To completely ban FDI from entering the country

Answer

To impose heavy taxes on FDI to deter foreign investors

Question 31

Which factor is NOT likely to make a country more attractive for foreign direct investment (FDI)?

Accepted Answer

Unstable political conditions

Answer

Abundant natural resources

Answer

Favorable corporate tax rates

Answer

Skilled and educated workforce

Question 32

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

Accepted Answer

Indirect investment

Answer

Mergers and acquisitions

Answer

Greenfield investment

Answer

Joint ventures

Question 33

Which of the following factors is NOT typically considered when making foreign direct investment (FDI) decisions?

Accepted Answer

Population growth

Answer

Labor costs

Answer

Tax incentives

Answer

Economic conditions

Question 34

What is a joint venture in the context of foreign direct investment (FDI)?

Accepted Answer

A strategic alliance between two or more companies to share ownership and control of a new entity.

Answer

A merger between two or more companies.

Answer

An investment made directly into a foreign subsidiary.

Question 35

Which of the following is an example of greenfield investment?

Accepted Answer

Establishing a new manufacturing plant in a foreign country.

Answer

Purchasing a majority stake in an existing foreign company.

Answer

Forming a joint venture with a local company.

Question 36

Which of the following is NOT a potential motivation for companies to engage in foreign direct investment (FDI)?

Accepted Answer

To avoid competition in their home market.

Answer

To reduce production costs.

Answer

To seek new markets.

Answer

To access new technologies.

Question 37

What is the primary distinction between foreign direct investment (FDI) and foreign portfolio investment (FPI)?

Accepted Answer

FDI involves direct ownership and control of a foreign business, while FPI represents passive investments in foreign financial assets.

Answer

FDI is less risky than FPI.

Answer

FDI is short-term, while FPI is long-term.

Question 38

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

Accepted Answer

Indirect Investment

Answer

Greenfield Investment

Answer

Joint Ventures

Answer

Mergers and Acquisitions

Question 39

What is the term used to describe the total cumulative value of FDI in a country at a given time?

Accepted Answer

FDI Inward Stock

Answer

Gross Domestic Product

Answer

Annual FDI Inflows

Answer

FDI Outward Stock

Question 40

What is the main objective of the World Investment Report?

Accepted Answer

To provide a comprehensive analysis of global FDI trends and patterns

Answer

To regulate FDI flows

Answer

To promote FDI in specific countries

Question 41

Which of the following is an example of a greenfield investment?

Accepted Answer

Building a new factory in a foreign country

Answer

Purchasing shares in an existing company

Answer

Establishing a joint venture with a local partner

Answer

Acquiring a minority stake in a multinational corporation

Question 42

Which of the following is a distinguishing feature of a multinational corporation (MNC)?

Accepted Answer

Owns and controls production facilities in multiple countries

Answer

Operates exclusively in small and medium-sized markets

Answer

Primarily exports its products and services

Answer

Has a majority of its employees in its home country

Question 43

What is the main purpose of foreign direct investment screening?

Accepted Answer

To assess and mitigate potential risks to national security

Answer

To encourage investment in specific industries

Answer

To regulate the flow of capital

Answer

To promote economic growth

Question 44

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

Accepted Answer

Indirect Investment

Answer

Joint Ventures

Answer

Mergers and Acquisitions

Answer

Greenfield Investment

Question 45

What is the primary advantage of a Greenfield investment for multinational corporations (MNCs)?

Accepted Answer

Complete control over operations and assets

Answer

Lower production costs

Answer

Access to new markets

Answer

Reduced regulatory burden

Question 46

Which of the following is a potential benefit of foreign direct investment (FDI) for host countries?

Accepted Answer

Job creation and economic growth

Answer

Increased competition that can harm local businesses

Answer

Environmental degradation and potential resource depletion

Answer

Loss of sovereignty and control over domestic industries

Question 47

What is the key difference between a merger and an acquisition?

Accepted Answer

In a merger, two companies combine to form a new entity, while in an acquisition, one company takes over another.

Answer

Mergers are always friendly, while acquisitions are always hostile.

Answer

In an acquisition, two companies combine to form a new entity, while in a merger, one company takes over another.

Question 48

Which of the following poses a potential risk associated with foreign direct investment (FDI)?

Accepted Answer

Political instability and policy changes in the host country

Answer

Availability of a skilled labor force

Answer

Strong infrastructure and transportation networks

Answer

Favorable tax policies and incentives

Question 49

What is the primary purpose of a joint venture in foreign direct investment (FDI)?

Accepted Answer

Sharing risks and rewards, combining resources, and gaining access to local knowledge

Answer

Avoiding government regulations and restrictions

Answer

Gaining access to new technology and expertise

Answer

Reducing production costs and improving efficiency

Question 50

A company establishes a new manufacturing facility in a foreign country to directly sell its products to local consumers. Which type of foreign direct investment is this?

Accepted Answer

Greenfield Investment

Answer

Merger

Answer

Joint Venture

Answer

Acquisition

Question 51

Which of the following is NOT a potential benefit of foreign direct investment for a host country?

Accepted Answer

Increased unemployment

Answer

Infrastructure development

Answer

Technology transfer

Answer

Economic growth

Question 52

When considering foreign direct investment, a company would likely prioritize which of the following factors?

Accepted Answer

Political stability and regulatory environment

Answer

Low taxes

Answer

Low labor costs

Answer

Proximity to raw materials

Question 53

A company purchasing an existing business in a foreign country to gain market access is an example of which type of FDI?

Accepted Answer

Merger or Acquisition

Answer

Joint Venture

Answer

Portfolio Investment

Answer

Greenfield Investment

Question 54

Which of the following is NOT a potential risk associated with foreign direct investment?

Accepted Answer

Decreased local competition

Answer

Political instability

Answer

Cultural differences

Answer

Currency fluctuations

Question 55

The theory of 'ownership advantage' suggests that companies with a competitive advantage in their home market are more likely to succeed with FDI. This advantage can be based on:

Accepted Answer

Brand recognition, technology, or specialized skills

Answer

Access to raw materials

Answer

Lower labor costs

Question 56

A company partnering with a local firm in a foreign country to share resources and expertise exemplifies which FDI strategy?

Accepted Answer

Joint Venture

Answer

Merger

Answer

Greenfield Investment

Answer

Portfolio Investment

Question 57

Which international organization plays a central role in promoting and regulating foreign direct investment worldwide?

Accepted Answer

The World Trade Organization (WTO)

Answer

The International Monetary Fund (IMF)

Answer

The United Nations (UN)

Answer

The World Bank

Question 58

A company chooses to invest in a foreign country with a rapidly growing consumer market and a skilled workforce. Which of the following factors is driving this decision?

Accepted Answer

Market seeking

Answer

Strategic asset seeking

Answer

Efficiency seeking

Answer

Resource seeking

Question 59

Which of the following government policies could potentially discourage foreign direct investment?

Accepted Answer

Implementing high tariffs on imported goods

Answer

Providing tax incentives to foreign investors

Answer

Investing in infrastructure and skilled labor

Answer

Simplifying business registration procedures