Global Business Today 8Th Edition Hill Test Bank Full Chapter PDF

Global Business Today 8th Edition Hill
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Chapter 08
Foreign Direct Investment
True / False Questions
1. When a firm exports its products to a foreign country, foreign direct investment occurs.
True False
2. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen,
organization, or affiliated group takes an interest of 10 percent or more in a foreign business
entity.
True False
3. Greenfield investment involves the establishment of a new operation in a foreign country.
True False
4. The flow of foreign direct investment refers to the number of countries a firm is investing in
at any given point in time.
True False
5. The stock of foreign direct investment refers to the total accumulated value of foreign-owned
assets at a given time.
True False
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6. The globalization of the world economy is having a negative effect on the volume of FDI.
True False
7. FDI has grown significantly slower than world trade and world output.
True False
8. According to the United Nations, majority of changes made worldwide between 1992 and
2008 in the laws governing foreign direct investment have created a more favorable
environment for FDI.
True False
9. Historically, most FDI has been directed at the least developed nations of the world.
True False
10. Since World War II, the United States has been the largest source country for FDI, a position
it retained during the late 1990s and early 2000s.
True False
11. Greenfield investments are quicker to execute than mergers and acquisitions.
True False
12. When a firm allows another enterprise to produce its products under license, the licensee
bears the costs or risks.
True False
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13. The attractiveness of exporting increases in comparison to FDI or licensing when products
have a low value-to-weight ratio.
True False
14. By placing tariffs on imported goods, governments can increase the cost of exporting relative
to foreign direct investment and licensing.
True False
15. By limiting imports through quotas, governments reduce the attractiveness of FDI and
licensing.
True False
16. A critical competitive feature of an oligopoly is independence of the major players.
True False
17. Multipoint competition arises when two or more enterprises encounter each other in different
regional markets, national markets, or industries.
True False
18. Economists refer to knowledge “spillovers” as externalities, and there is a well-established

theory suggesting that firms can benefit from such externalities by locating close to their
source.
True False
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19. According to the extreme version of radical view, no country should ever permit foreign
corporations to undertake FDI, because they can never be instruments of economic
development, only of economic domination.
True False
20. By the early 1990s, the radical position toward FDI was in retreat due to the rise of
communism in eastern Europe.
True False
21. According to the free market view, countries should specialize in the production of those
goods and services that they can produce most efficiently.
True False
22. According to the pragmatic nationalist view, no country should ever permit foreign
corporations to undertake FDI.
True False
23. World trade has been growing twice as fast as the growth in the volume of FDI worldwide.
True False
24. The indirect employment effects of FDI are often as large as, if not larger than, the direct
effects.
True False
8-4
25. Services, such as telecommunications, retailing, and many financial services, where the
service has to be produced where it is delivered, lend themselves well to exporting.
True False
26. An acquisition does not result in a net increase in the number of players in a market.
True False
27. Offshore production refers to FDI undertaken to serve the host market.
True False
28. Many investor nations now have government-backed insurance programs to cover major
types of foreign investment risk like the risks of expropriation (nationalization), war losses,
and the inability to transfer profits back home.
True False
29. Ownership restraints and performance requirements are the two most common ways in
which host governments restrict FDI.
True False
30. Performance requirements are controls over the behavior of the MNE’s local subsidiary.
True False
31. The WTO embraces the promotion of international trade in services.
True False
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32. The location-specific advantages argument associated with John Dunning helps explain why
firms prefer FDI to licensing or to exporting.
True False
33. Licensing is not a good option if the competitive advantage of a firm is based upon
managerial or marketing knowledge that is embedded in the routines of the firm or the skills
of its managers, and that is difficult to codify in a “book of blueprints.”
True False
34. Franchising is essentially the service-industry version of licensing, although it normally

involves much longer-term commitments than licensing.
True False
35. Despite the move toward a free market stance in recent years, many countries still have a
rather pragmatic stance toward FDI.
True False
36. A firm's bargaining power is low when the host government places a low value on what the
firm has to offer.
True False
Multiple Choice Questions
8-6
37. A computer manufacturing firm from the United States invests in a microprocessor
manufacturing plant in Taiwan. This is an example of:
A. insourcing.
B. stock consolidation.
C. foreign direct investment.
D. product differentiation.
E. market segmentation.
38. According to the U.S. Department of Commerce, in the United States _____ occurs whenever
a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a
foreign business entity.
A. multilateral investment
B. foreign direct investment
C. reciprocal foreign investment
D. international divestment
E. asset divestment
39. A firm becomes a(n) _____, once it undertakes FDI.
A. outsourcer
B. retail chain
C. offshore company
D. multinational enterprise
E. national corporation
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40. Which of the following is most likely to involve establishment of a new operation in a foreign
country?
A. Consolidation
B. Greenfield investment
C. Acquisition
D. Licensing agreement
E. Mass customization
41. Which of the following indicates that a firm has full outright stake in an acquisition?
A. Anderson Corporations acquires at least 75 percent of a company.
B. Sheffield Enterprises acquires at least 60 percent of a company.
C. Arthur Enterprises acquires 98 percent of a company.
D. Maximus Corporations acquires 100 percent of a company.
E. Dream Animax acquires atleast 85 percent of a company.
42. The _____ of foreign direct investment refers to the amount of FDI undertaken over a given
period (normally a year).
A. portfolio
B. flow
C. status
D. stock
E. fragment
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43. The stock of foreign direct investment refers to:
A. the total accumulated value of foreign-owned assets at a given time.
B. the number of shares of a foreign firm held by the local investors.
C. to the amount of FDI undertaken over a given time period (normally a year).
D. the dividend amount paid by the foreign firm to local investors.
E. the flow of foreign direct investment out of a country.
44. Which of the following statements is true regarding foreign direct investment?
A. The flow of FDI refers to the total accumulated value of foreign-owned assets at a given
time.
B. FDI has grown more rapidly than world trade and world output.
C. The general shift toward democratic political institutions has discouraged FDI.
D. Generally, free market economies oppose FDI.
E. The globalization of the world economy is having a negative effect on the volume of FDI.
45. Why has FDI grown more rapidly than world trade?
A. Decline in trade barriers has made the fear of protectionist pressures redundant.
B. Executives of business firms see FDI as a way of circumventing future trade barriers.
C. There has been a general shift toward radical and totalitarian political institutions.
D. Privatization has made developing nations less attractive for multinational enterprises.
E. There has been a general shift toward centrally planned command economies.
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46. Historically, most FDI has been directed at the _____ nations of the world.
A. underdeveloped
B. developing
C. developed
D. emerging
E. least developed
47. The United States has been an attractive target for FDI partly because of its:
A. abundance of cheap and skilled labor.
B. stable and dynamic economy.
C. commitment to environmental issues.
D. low corporate tax rates.
E. high trade barriers
48. Which of the following is true regarding the inflow of FDI?
A. Even though developing nations still account for the largest share of FDI inflows, FDI into
underdeveloped nations has increased markedly.
B. Africa has historically been the largest recipient of inward FDI.
C. The United Kingdom and France have historically been the smallest recipients of inward
FDI.
D. There has been an increase in the importance of China as a recipient of FDI.
E. Latin America is the least important region in the developing world for FDI inflows.
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49. Countries such as the U.S., the U.K., France, Germany, the Netherlands, and Japan dominate
in the share of total global stock of FDI and FDI outflows and in rankings of the world's
largest multinationals because:
A. they were the most developed countries postwar and home to the largest and best
capitalized enterprises.
B. they pursued a policy of blocking or restricting FDI inflow into their own economies.
C. they provided subsidies for their domestic firms to protect them from foreign competition.
D. they control much of the operating structure of the WTO which governs international trade.
E. they were the governing body of the International Monetary Fund.
50. During 1998 to 2010, which of the following countries had the highest FDI outflow?
A. United Kingdom
B. United States
C. Netherlands
D. Germany
E. Japan
51. In the case of developing nations, about _____ of FDI is in the form of cross-border mergers
and acquisitions.
A. three-fourth
B. one-third
C. one-half
D. two-third
E. three-fifth
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52. Mergers and acquisitions differ from greenfield investments in that:
A. greenfield investments are quicker to execute than mergers and acquisitions.
B. greenfield investments are undertaken to take advantage of valuable strategic assets,

such as brand loyalty and trademarks or patents, of a foreign competitor.
C. the majority of FDI flows into developed nations are in the form of greenfield investments
rather than mergers and acquisitions.
D. the majority of FDI flows into developing nations is in the form of cross-border mergers
and acquisitions.
E. the percentage of mergers and acquisitions is lower than greenfield investments in

developing nations.
53. _____ involves producing goods at home and then shipping them to the receiving country for
sale.
A. Outsourcing
B. Licensing
C. Franchising
D. Exporting
E. Diversifying
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54. The _____ states that combining location-specific assets or resource endowments and the
firm's own unique assets often requires FDI and it also requires the firm to establish
production facilities where those foreign assets or resource endowments are located.
A. strategic trade policy
B. integration approach
C. scramble theory
D. eclectic paradigm
E. infant industry argument
55. 3M, an American firm, manufactures adhesive tapes in St. Paul, Minnesota, and ships the
tapes to South Korea for sale. According to this information, which of the following is being
done by 3M?
A. Exporting
B. Licensing
C. Franchising
D. Insourcing
E. Outsourcing
56. Which of the following 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. Outsourcing
B. Exporting
C. Licensing
D. Diverging
E. Hedging
8-13
57. FDI is risky because of the problems associated with:
A. sharing a valuable technological know-how with a potential competitor.
B. increase in the transportation costs, especially for those products that have a low value-
to-weight ratio.
C. doing business in a different culture where the rules of the game may be very different.
D. the possibility of increase in trade barriers such as import tariffs or quotas.
E. increased production costs.
58. The viability of an exporting strategy is often constrained by transportation costs, particularly
of products that have a _____ and that can be produced in almost any location.
A. high local content requirement
B. low total landed cost
C. low value-to-weight ratio
D. low licensing tariff
E. high marginal cost
59. Which of the following is one of the limitations of exporting that leads companies to prefer
FDI over exporting?
A. The presence or threat of trade barriers
B. The costs of acquiring a foreign enterprise
C. The costs of establishing production facilities in a foreign country
D. The risk of giving away valuable technological know-how to a potential foreign competitor
E. The possibility of diminishing returns
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60. A firm will favor FDI over exporting as an entry strategy when:
A. the costs of establishing production facilities are high.
B. the transportation costs or trade barriers are high.
C. there are problems associated with doing business in a different culture.
D. the products involved have a high value-to-weight ratio.
E. the firm wants to occupy a position that falls inside the efficiency frontier.
61. Which of the following products has a low value-to-weight ratio?
A. Electronic components
B. Personal computers
C. Medical equipment
D. Computer software
E. Cement
62. A firm that does not want to bear the costs of establishing production facilities in a foreign
country should avoid:
A. exporting.
B. FDI.
C. licensing.
D. franchising.
E. outsourcing.
8-15
63. Governments impose quotas to limit _____.
A. FDI
B. importing
C. franchising
D. outsourcing
E. licensing
64. The argument that firms prefer FDI over licensing to retain control over know-how,
manufacturing, marketing, and strategy or because some firm capabilities are not amenable
to licensing constitutes the _____.
A. comparative advantage theory
B. distribution theory
C. new trade theory
D. internalization theory
E. licensing theory
65. The market imperfections approach seeks to explain:
A. the disadvantages associated with the adoption of a completely free market view.
B. why different nations import goods from other countries even when they are more capable
of producing them efficiently.
C. the preference for FDI over licensing by firms as a strategy to enter foreign markets.
D. the benefits of exercising protectionism coupled with partial adoption of free market
approach.
E. the pattern of sale of products from one country to another.
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66. According to internalization theory:
A. licensing gives a firm the tight control over manufacturing, marketing, and strategy in a
foreign country that may be required to maximize its profitability.
B. licensing may result in a firm’s giving away valuable technological know-how to a potential
foreign competitor.
C. licensing has no major drawbacks as a strategy for exploiting foreign market opportunities.
D. a problem with licensing arises when the firm’s competitive advantage is based much on
its products rather than on the management, marketing, and manufacturing capabilities
that produce those products.
E. licensing is more profitable than FDI.
67. According to internalization theory, one of the drawbacks of licensing is that:
A. it may result in a firm's technological know-how being restricted to a limited knowledge

base and stifles any future development.
B. it does not give a firm the tight control over manufacturing, marketing, and strategy in a
foreign country that may be required to maximize its profitability.
C. when a firm allows another enterprise to produce its products under license, the licensee
bears the costs or risks.
D. its use is restricted by the government by imposing tariffs and quotas.
E. it is less cost-effective than FDI.
8-17
68. A firm is most likely to favor foreign direct investment over exporting when:
A. the firm wants its technological know-how to be widely disseminated.
B. the firm wishes to maintain control over its operations and business strategy.
C. the transportation costs are low.
D. there are no trade barriers.
E. the firm wants to customize its products as per the tastes and preferences of foreign
consumers.
69. The strategic behavior theory:
A. explains the constrains of exporting and licensing.
B. seeks to explain the challenges faced by a firm during the establishment of a new
operation in a foreign country.
C. seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection
of strategic rivalry between firms in the global marketplace.
D. reviews the theories that have been used to explain foreign direct investment.
E. explains how greenfield investments are better than FDI.
70. The cement market in Erbia is dominated by four firms. These firms control 85 percent of
selling and buying of the domestic market. Which of the following terms explains the market
structure of cement industry in Erbia?
A. Perfect competition
B. Monopoly
C. Oligopoly
D. Dual monopoly
E. Monopsony
8-18
71. A critical competitive feature of an oligopoly is:
A. the lack of interaction among the major players.
B. the presence of a domestic market which is open for foreign firms.
C. the desire of all the major players to avoid the phenomenon of diminishing returns.
D. the interdependence of the major players.
E. the lack of imitative behavior among the major players.
72. If one firm in an oligopoly cuts prices, then most likely, its competitors:
A. will make profits.
B. will also respond with similar price cuts.
C. will correspondingly raise prices.
D. will capture additional market share.
E. will not be impacted by the price cuts.
73. The interdependence between firms in an oligopoly leads to _____.
A. trade wars
B. a decrease in the supply
C. imitative behavior
D. higher demand
E. increased domestic consumption
8-19
74. QFresh, a brand for energy drinks launched a healthy lime based drink without preservatives.
Immediately after this another brand, Fast Fizz, which manufactures energy drinks, also
announced the launch of a new refreshing drink without preservatives. Then Ignite, a third
brand of energy drinks, reduced the price of its apple based drink. Which of the following is
most likely to happen in this oligopolistic market set up?
A. QFresh and Fast Fizz will reduce the prices of their respective drinks.
B. Fast Fizz will launch another new drink.
C.
QFresh will tie up with Ignite to launch a completely new product.
D. Fast Fizz and Ignite will collaborate against QFresh.
E. QFresh will have an increased domestic consumption.
75. A(n) _____ arises when two or more enterprises encounter each other in different regional
markets, national markets, or industries.
A. monopoly
B. monopsony
C. cartel
D. multipoint competition
E. oligopsony
8-20
76. The idea behind multipoint competition is to ensure that:
A. a rival does not dominate one market and use the profits from there to drive competitive
attacks elsewhere.
B. the competitors cooperate with each other to establish a cartel.
C. no other competitors can enter the market unless they resort to licensing or franchising
with the initial pioneers.
D. growing technologies or business methods in new markets are transferred to established

markets.
E. the firms in an industry prefer FDI over licensing or exporting.
77. The difference between Internalization theory and imitative theory is that:
A. internalization theory does not explain why the first firm in an oligopoly decides to
undertake FDI rather than to export or license.
B. imitative theory addresses the issue of whether FDI is more efficient than exporting or
licensing for expanding abroad.
C. most economists favor imitative theory as an explanation for FDI.
D. no important aspect of FDI is explained by imitative theory.
E. internalization theory addresses the issue of efficiency of FDI over exporting or licensing.
8-21
78. Which of the following concepts helps explain how location factors affect the direction of
FDI?
A. The eclectic paradigm
B. The protectionism argument
C. The product life-cycle theory
D. The new trade theory
E. The infant industry argument
79. Location-specific advantages for a firm are those that arise from:
A. acquiring the home markets of foreign firms that threaten a firm's domestic market.
B. gaining a commanding position in one market and using them to subsidize competitive
attacks in other markets.
C. preferring exporting over licensing in order to retain control over know-how,

manufacturing, marketing, and strategy.
D. utilizing resource assets that are tied to a particular foreign location and valuable enough
to be combined with the firm's own unique assets.
E. franchising and licensing.
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80. Which of the following is true about Dunning's arguments?
A. Dunning rejects the argument of internalization theory that it is difficult for a firm to
license its own unique capabilities and know-how.
B. Dunning suggests that to exploit such foreign resources, such as oil and other minerals, a
firm must undertake licensing rather than FDI.
C. Dunning argues that it makes sense for a firm to locate production facilities in those
countries where the cost and skills of local labor is most suited to its particular production
processes, since labor is not internationally mobile.
D. Dunning’s theory and its extensions help explain the imitative FDI behavior by firms in
oligopolistic industries.
E. Dunning argues that combining location-specific assets or resource endowments with the
firm’s own unique capabilities always requires licensing.
81. Economists refer to knowledge "spillovers" that occur when companies in the same industry
are located in the same area as:
A. technology flows.
B. overlaps.
C. corporate espionage.
D. externalities.
E. a free rider problem.
8-23
82. Silicon Valley in California is the world center for the computer and semiconductor industry
and has many of the world's major computer and semiconductor companies located close to
each other, thus offering the location-specific advantage of:
A. a multipoint competition.
B. an oligopoly.
C. a first mover.
D. externalities.
E. free riders.
83. Dunning’s theory helps explain:
A. how firms try to match each other’s moves in different markets to try to hold each other in
check.
B. the interdependence between firms in an oligopoly that leads to imitative behavior among
the rivals.
C. why a greenfield investment in a new facility is better than an acquisition of or a merger

with an existing local firm.
D. the problems associated with doing business in a different culture where the rules of the
game may be very different.
E. how location factors affect the direction of FDI.
84. The _____ view of FDI traces its roots to Marxist political and economic theory.
A. radical
B. free market
C. pragmatic nationalism
D. comparative advantage
E. pluralist
8-24
85. Radical writers argue that:
A. a multinational enterprise (MNE) is an instrument of economic development rather than

economic domination.
B. MNEs are more beneficial to host countries than to their home countries.
C. important jobs in the foreign subsidiaries of MNEs go to host-country nationals rather than
to citizens of the home country.
D. FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the
world relatively backward.
E. MNEs exploit their home countries for the exclusive benefit of their host countries.
86. People with radical view toward FDI argue that _____ is an instrument of imperialist
domination.
A. privatization
B. a multinational enterprise
C. nationalization
D. a publicly traded company
E. outsourcing
87. According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a
country:
A. should be immediately nationalized.
B. should be made to pay higher taxes.
C. should be converted in to publicly traded companies.
D. should be banned from obtaining finance from the financial institutions in the host
country.
E. should be immediately privatized.
8-25
88. According to the radical view, which of the following countries would benefit the most from
FDI?
A. Host countries of MNEs
B. Third world countries
C. Less developed FDI destinations
D. Advanced, capitalist home countries of MNEs
E. Underdeveloped countries
89. Which of the following is a reason for the decline in the popularity of the radical view of FDI?
A. The rise of communism in Eastern Europe
B. The generally steady economic growth of those countries that embraced the radical
position
C. The growing belief in many countries that FDI leads to loss of jobs
D. The strong economic performance of those developing countries that embraced capitalism
E. The collapse of capitalism in the newly independent nations of Asia
90. The _____ view argues that international production should be distributed among countries
according to the theory of comparative advantage.
A. conservative
B. pragmatic nationalism
C. free market
D. radical
E. Keynesian economic
8-26
91. According to the free market view, how does FDI increase the efficiency of world economy
through MNEs?
A. The MNE is an instrument for dispersing the production of goods and services to the most
efficient locations around the globe.
B. MNEs extract profits from the host country and take them to their home country and help
all countries realize economies of scale.
C. When an MNE produces products, profits from the investment go abroad, and hence the
MNE helps foreign exchange to rotate.
D. A foreign-owned manufacturing plant may import many components from its home
country, thus improving the balance of payments of the host country.
E. MNEs increase the efficiency of world economy by increasing the flow of capital in the
world market.
92. Which of the following statements regarding the free market view is true?
A. According to the free market view, MNEs decrease the overall efficiency of the world
economy.
B. No country has adopted the free market view in its pure form.
C. According to the free market view, MNEs can never be instruments of economic
development, only of economic domination.
D. According to the free market view, FDI is beneficial to the host country of an MNE but it is
harmful for the home country of the MNE.
E. The free market view traces its roots to Marxist political and economic theory.
8-27
93. Britain reserves the right to intervene in FDI by:
A. reserving the right to block foreign takeovers of domestic firms in certain situations.
B. prohibiting FDIs over and above a certain fixed annual amount.
C. nationalizing certain industries that provide essential goods and services.
D. imposing economic sanctions against specific countries.
E. by limiting exports and licensing.
94. The pragmatic nationalist view is that :
A. FDI benefits only the host country.
B. FDI does not make any positive contribution to the host economy.
C. every country should adopt the free market view.
D. FDI should not be allowed by any country as it is an instrument of economic domination

rather than economic development.
E. FDI has both benefits and costs.
95. Many host countries are concerned that a foreign-owned manufacturing plant may import
many components from its home country, which has negative implications for the host
country's _____.
A. free trade agreements
B. inward FDI
C. sovereignty
D. balance-of-payments position
E. gold reserves
8-28
96. According to the _____, FDI has both benefits and costs and should be allowed only if the
benefits outweigh the costs.
A. eclectic paradigm theory
B. free market view
C. pragmatic nationalist view
D. radical view
E. internalization theory
97. The tendency to aggressively court FDI believed to be in the national interest of a country is
an aspect of:
A. pragmatic nationalism.
B. the radical view.
C. nationalism.
D. imitative theory.
E. eclectic paradigm.
8-29
98. Which of the following is true regarding the pragmatic nationalist view of FDI?
A. One aspect of pragmatic nationalism 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.
B. The pragmatic nationalist view states that FDI always has a positive effect on the balance
of payments which arises from the outflow of a foreign subsidiary's earnings and from the
import of inputs from abroad.
C. According to pragmatic nationalist view, international production should be distributed

among countries based on the theory of comparative advantage.
D. According to pragmatic nationalist view, FDI should not be allowed to enter into a country
because its costs always outweigh its benefits.
E. The pragmatic nationalist view of FDI accepts the Marxist theory, and suggests that FDI by
MNEs is an instrument of imperialism.
99. Offering subsidies to foreign MNEs in the form of tax breaks or grants is one way of:
A. adopting a retaliatory stance in bilateral trade.
B. courting FDI believed to be in national interest.
C. adopting a radical stance to FDI.
D. blocking FDI inflows into the country.
E. curbing a trade war.
8-30
100.The main benefits of inward FDI for a host country arise from:
A. the resource-transfer effect, the employment effect, and the balance-of-payments effect.
B. the labor-transfer effect, the technology effect, and the currency-exchange effect.
C. the cultural awareness effect, first-mover advantage effect, and economic development
effect.
D. the foreign exchange reserves effect, knowledge flow effect, and the reverse resource
transfer effect.
E. the employment effect, the labor-transfer effect, and the technology effect.
101.Foreign managers trained in the latest management techniques can often help to improve
the efficiency of operations in the host country, whether those operations are acquired or
greenfield developments. This benefit of FDI falls into the category of _____.
A. employment effects
B. balance-of-payments effects
C. effects on competition
D. resource transfer effects
E. autonomy effects
8-31
102.Which of the following statements is most likely to be true regarding the effects of FDI on
employment?
A. FDI does not result in job creation.
B. FDI has only indirect effects on employment in the host country.
C. The indirect employment effects of FDI are always smaller than the direct effects.
D. When FDI takes the form of an acquisition of an established enterprise in the host
economy as opposed to a greenfield investment, the immediate effect is always an
increase in the employment.
E. A beneficial employment effect claimed for FDI is that it brings jobs to a host country that
would otherwise not be created there.
103.Direct effects of FDI on employment in the host country arise when a foreign MNE:
A. brings in managers trained in the latest management techniques from the home country.
B. creates jobs because of increased local spending by employees of the MNE.
C. employs a number of host country citizens.
D. causes local suppliers to hire more people.
E. creates jobs in the supporting industries.
104.Indirect effects of FDI on employment in a host country arise when:
A. a foreign MNE employs a number of host-country citizens.
B. jobs are created because of increased local spending by employees of an MNE.
C. an MNE brings in managers from the home country for its operations in the host country.
D. an MNE recruits people from the host country for research and development.
E. an MNE sends it home country employees to host countries for training.
8-32
105._____ accounts are national accounts that track both payments to and receipts from other
countries.
A. Equity
B. Dematerialized
C. Balance of trade
D. Asset
E. Balance-of-payments
106.In the balance of payments, the _____ account records transactions involving the export and
import of goods and services.
A. current
B. foreign
C. internal
D. tariff
E. savings
107.A current account deficit is also known as a(n) _____ deficit.
A. stock
B. inventory
C. external
D. tariff
E. trade
8-33
108.When a country is importing more goods and services than it is exporting, it is incurring a(n):
A. trade surplus.
B. current account deficit.
C. positive balance of payment.
D. economic recession.
E. net capital inflow.
109.Which of the following is the only way in which a current account deficit can be supported in
the long run?
A. Borrowing from the IMF
B. Selling assets to foreigners
C. Divesting stock in domestic corporations
D. Purchasing stocks, bonds, and real estate in other countries
E. Issuing negotiable instruments like the bills of exchange
110.Which of the following is most likely to be the effect of FDI in the form of a greenfield
investment on the host country?
A. It drives down prices and increases the economic welfare of consumers.
B. It raises unemployment levels.
C. It causes firms to fight for scarce capital investments.
D. It leads to an oligopolistic market and unfair pricing.
E. It leads to decreased productivity, product and process innovations, and lesser economic
growth.
8-34
111.Which of the following statements is most likely to be true regarding the adverse effects of
FDI on the host country?
A. It decreases the level of competition in the host country.
B. It tends to increase the prices of the products.
C. It leads to a high rate of unemployment in the long run.
D. When a foreign subsidiary imports a substantial number of its inputs from abroad, it
results in a debit on the current account of the host country’s balance of payments.
E. When a foreign subsidiary sends its profits to its home country, it results in the depletion
of gold reserves of the host country.
112.The most important concerns regarding the costs of FDI for the home-country center on:
A. the balance-of-payments and employment effects of outward FDI.
B. the technology capture effect and the perceived loss of national sovereignty.
C. the reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D. the import of substantial input from abroad and being held to "economic ransom."
E. the exposure to foreign markets and the decreased costs of production.
113.Offshore production refers to FDI undertaken:
A. to focus on extractive industries, such as oil and gas.
B. to serve the home market.
C. in shipping industries.
D. to decrease the prices of products in the host countries.
E. to capture tax benefits in the host country.
8-35
114.Which of the following is a major type of foreign investment risk that is insurable through
government-backed programs?
A. Lack of funds
B. Risk of transaction loss
C. Poor strategic tie-ups
D. Risks of expropriation
E. Losses due to natural calamities
115.As an incentive to encourage domestic firms to undertake FDI, many countries have:
A. eliminated double taxation of foreign income.
B. started imposing local content requirements.
C. imposed higher import tariffs.
D. abolished the use of custom duties.
E. eliminated subsidies.
116.Which of the following is a home-country policy for limiting outward FDI?
A. Eliminating double taxation of foreign income
B. Manipulating tax rules to encourage the firms to invest at home
C. Withdrawing government-backed insurance programs provided to local investors
D. Reducing interest rates earned on domestic investments
E. Prohibiting organizations from entering into a cartel
8-36
117.To encourage inward FDI, it is increasingly common for governments to:
A. offer tax concessions to firms that invest in their countries.
B. exclude foreign companies from specific industries.
C. require that local investors own significant proportion of the equity in a joint venture.
D. impose high custom duties on foreign firms.
E. prohibit MNEs from joining a cartel.
118.Host governments use a range of controls to restrict inward FDI. The two most common are:
A. monetary restraints and prohibition on investing in certain countries.
B. voluntary export restrictions and employment restraints.
C. ownership restraints and performance requirements.
D. tax concessions and government-backed insurance.
E. employment restraints and tax deductions.
119.Many services have to be produced where they are sold; hence _____ is not an option.
A. FDI
B. franchising
C. greenfield investment
D. exporting
E. outsourcing
8-37
120.Firms for which licensing is not a good option include:
A. low-technology industries.
B. global oligopolies.
C. industries characterized by low cost pressures.
D. industries where transportation costs are high.
E. industries which need to have low control over foreign operations.
121.Although it normally involves much longer-term commitments, franchising is essentially the

service industry version of:
A. exporting.
B. licensing.
C. foreign direct investment.
D. greenfield investment.
E. diversifying.
Essay Questions
8-38
122.What is meant by the term foreign direct investment? Describe the difference between the
flow of foreign direct investment and the stock of foreign direct investment.
8-39
123."Firms prefer to acquire existing assets rather than undertake greenfield investments while
contemplating FDI." Explain the reasons that support this argument.
8-40
124.Despite its advantages, FDI has been described as an "expensive" and "risky" international
growth strategy. Other things being equal, why is FDI expensive and risky when compared to
licensing and exporting?
8-41
125.When a firm exports, it need not bear the costs associated with FDI, and it can reduce the
risks associated with selling abroad by using a native sales agent. Exporting, however, is not
without its limitations. Discuss the most common limitations of exporting as compared to
FDI.
8-42
126.In the context of the internalization theory, explain why licensing may not be an attractive
option.
8-43
127.Under what circumstances, will a firm favor foreign direct investment over exporting as an
entry strategy?
128.Describe Dunning's arguments regarding the location-specific advantages.
8-44
129.In the context of FDI, describe the political ideologies of the radical view, the free market
view, and pragmatic nationalism.
8-45
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CHAPTER XXI.
We Spend a Couple of Days at a Michigan Man’s Ranch in Darkest
Africa—Pa and the Cowboys Take a Bath—After Smoking about 50
Cigars—Pa Told What Cowards Lions and Tigers Were—Pa Walked
up to a Lion and Gave Him a Cut with a Whip.
We have spent a comple of days at the Michigan man’s ranch in

Darkest Africa, where he has brought civilization right into the
Jungle, and after spending six months with negro savages and wild
animals, and menagerie people, it has been the most enjoyable two
days I ever knew.
It is good sometimes to see ourselves as others see us, and not
having looked into a mirror for half a year, we found that we were
about the most disreputable looking tourists that ever came in sight
of beds with linen sheets on, and pillows.
I noticed that the family of the Michigan man and the servants looked
at us with suspicion, and turned up their noses at us, but I never
realized what it was all about until they showed us to our rooms that
night, when I saw myself in a mirror, and found that my face and
hands were black with dirt and smoke, my clothes were greasy and
patched with buckskin patches, sewed on with strips of rawhide, and
my torn coat was pinned together with thorns. I could see Pa and the
cowboy all the time, and knew that they looked like tramps, but I
thought I was all right.
The Michigan man showed us to our rooms, after Pa and the cowboy
had drank a few quarts of highballs, and they were going to go to
bed with their clothes on, but I knew they would ruin the beds if they
did, so I insisted that we all get in the bath tubs and take our semi-
annual bath, and as the man left us he said we could find clothes to
put on in the morning, in a closet, and to leave our clothes out in the
hall and he would have a servant take them away with the tongs and
burn them in the furnace.
That sobered Pa and the cowboy a little, and they decided to try the
baths.
Well, we didn’t do a thing to the running water, and before we retired
we had washed ourselves so clean, with real soap, the first we had
seen since we left Germany, that Pa and the cowboy had to be
introduced to each other, and I was so clean that I didn’t know
myself, and we put on pajamas that we found in the room, and
crawled into the clean beds and slept till morning, after putting all of
our clothes out of the room, to purify the air.
In the morning we dressed up in the clothes the Michigan man told
us we would find in the closet, and such a transformation was never
seen before.
Pa found a pair of gray pants and a frock coat, and a silk hat, and
when he was dressed and had on a white shirt he looked like a
senator from South Carolina.
The cowboy found a golf suit, with short pants, long socks, and putty
leggins, and a Tam o’ Shanter cap, and he looked like an escaped
Scotchman, while I found a Buster Brown suit that fit me, and all I
wanted was a dog to be complete, and we went down to breakfast,
and made a hit, the family acting as though they were proud to have
us in their midst.
During breakfast they all drew Pa out, and he told them of his
experiences capturing wild animals in Africa, and exploring the
country, and being made king of a tribe, and they called Pa “Your
Highness,” and Pa lied enough about his adventures to send him
over the road for disorderly conduct.
The women drew out the cowboy, and he lied some on his own
account, and the children got me to going, and you know how it is
with me when I get to going.
When the breakfast was over we were all heroes, and Pa pulled out
a handful of uncut diamonds and spread them on the table by his
plate, and gave each one a diamond as big as a hickory nut, and left
a lot of smaller ones on the table with the bread crumbs for the
servants, and when we left the table the whole family bowed low to
us, and stood back until the king and the cowboy and I had passed
out on to the veranda.
Gee, but they seemed to think King Edward wouldn’t be ace high to
Pa, and Pa swelled up so I thought he might bust.
Pa Swelled Up So I Thought He Might Bust.

After smoking some fifty cigars, Pa told of what cowards lions and
tigers were, and how he could take a riding whip and chase a lion up
a tree, and the Michigan man proposed to have an exhibit of his wild
animals, which he kept in his private forest outside of the clearing.
He had a race track in the clearing next to the forest, and told Pa that
every morning his herders turned a lot of lions, giraffes, rhinoceroses
and zebras into the track, and the family chased them around the
track in automobiles, and Pa said he would like to enter into such a
race, and the man ordered the herders to turn in the animals.
The cowboy wanted a saddle horse and a lariat rope, and they fixed
him out, and when the herders announced that the animals were on
the track all right, we got into the waiting autos, the man and Pa lit
cigars and sat on the front seat with the chauffeur, and some of us
got in the back seats and started out.
When the animals saw us coming they started down the home
stretch, and the auto gave chase, and we yelled and fired guns in the
air, and the chauffeur put a charge of bird shot into the hind hams of
a lion that didn’t seem to be in much of a hurry, and the lion turned
on us, and Pa told the chauffeur to stop and he would settle with the
lion.
Pa got out with a horse whip and started for the lion, which gave a
roar like distant thunder, and as I looked at Pa with the frock coat
and silk hat, walking towards the lion I thought that was the last of
Pa, and begged him to come back, but he said, “Never you mind me,
I have seen lions before,” and Pa walked up to the lion and gave him
a cut with the whip, and yelled, “Get back into the jungle, you Tom
Cat.”
Well, really, that lion ought to have turned and put his tail between
his legs and galloped for the woods, but Pa had made a mistake in
his lion, for the animal went up to Pa and took a mouthful of his
pants, and shook him like a dog would shake a rat, and Pa yelled for
them to take away their lion if they didn’t want the animal injured.
The animal rolled Pa over on the ground in the dust, chewed his silk
hat, and Pa got loose and made a rush for the auto and crawled
under it to fix something, and just then the cowboy came along on a
pony and threw his lariat over the lion’s head and pulled him away
across the track, and Pa came out from under the machine and took
a big monkey-wrench and started again for the lion, bareheaded,
and so mad he fairly frothed at the mouth, after he saw the lion was
choked nearly to death, and then Pa mauled the apparently dead
lion until the cowboy dismounted from the pony and gave his lariat
rope back.
Pa gave the lion a couple of kicks, and got back into the auto, and
the Michigan man patted him on the back and said, “Old man, you
are a king of beasts, sure enough;” and Pa said, “O, I don’t know; I
never did like a cowardly lion, no how.”
We chased some more animals around the track, and the Michigan
man said he hoped the toothless old lion would not die, as he was
saving him for Roosevelt to practice on when he came to the ranch
after the 4th of March.
The cowboy went across the field where a tame giraffe was grazing
in a tree top, and took the saddle off his pony and put it on the
giraffe, and we run up to where he was, and the Michigan man
asked him what he was going to do, and he said he was going to
ride the giraffe, as he had ridden almost everything that walked on
four legs except a giraffe.
The Michigan man told him he had better leave the giraffe out of his
repertoire, because a giraffe was mighty uncertain, but the cowboy
got the saddle on, and climbed into it, and then the trouble began.
The giraffe didn’t have any bridle on, and no mane to hold on to, and
he was built so that the saddle slipped down by his rump, and when
the animal turned around and saw he had the cowboy where he
wanted him, he started off towards the forest on a hop, skip and a
jump, kicking up his heels like a bucking broncho, and the last we
saw of the expedition the giraffe had jumped over a wire fence and
took to the woods, with the cowboy dangling by one stirrup, swearing
in the Wyoming dialect.
The Giraffe Didn’t Have Any Bridle On—and No Mane to
Hold On To.
Then we went back to the house to play golf, and the Michigan man
sent some servants into the woods with a strecher to bring in the
remains of the cowboy.
As we dismounted at the veranda, Pa lit a cigarette and said to the
man, “You certainly have all the comforts of a home here, and all the
facilities for enjoyment that anybody has outside of a traveling
menagerie, except draw poker.”
“We can fix you all right on the draw poker,” said the Michigan man.
“Boy, bring the chips and the cards, and let me know when they find
the remains of Mr. Cowboy,” and they began to play poker, and I
went out to see them milk a Jersey cow.
CHAPTER XXII.
Pa and the Boy Have a Series of Ups and Downs—Pa Plays Poker with
the Michigan Man and Loses All His Money—Pa Puts Up His Airship
and Loses—Pa and the Boy Start for Hamburg—The Boy Makes a
King’s Crown Out of Tin—The Boy Tells How They Escaped from the
Negro Tribes in Africa.
It seems to be just one series of ups and downs with Pa and I. One
day we are kings and things, and the next day we are just things and
not kings, or ninespots, or anything in the deck, except it’s Jacks.
That short stay at the ranch of the Michigan man in Africa, which
seemed like being set down from hades in Darkest Africa to Heaven
in America, terminated just as everything else does with us.
After we had enjoyed the morning with the wild animals on the race
track, Pa and the Michigan man set into a game of draw poker with
some other sharps and the cowboy, and they must have stacked the
cards on Pa and the cowboy, for before night they had got all Pa’s
money away, and the cowboy was burst, too, and in the evening Pa
put the airship up against the creamery and a drove of Jerseys, and
Pa lost the airship, and then Pa gave checks on a bank in the River
Nile, and lost all the checks, and about a pint of the diamonds, and
when we went to bed the Michigan man said he hated to part with
us, but if we must go he would send us over to Lake Victoria
Nigouza, where we could take a steamer for Hamburg.
We didn’t sleep much that night, and the next morning the auto was
at the door, and we took what little stuff Pa had not lost playing
poker, and crossed the country to the lake, at a town where Pa sold
some of his uncut diamonds for money enough to pay for our
passage to Hamburg, and we got on board the vessel and got into
our state rooms.
Just before we were ready to start an officer came on board looking
for two white men who had been giving checks that were no good,
and for selling diamonds that would not wash.
I heard about it, and there was such a crowd that the vesselmen did
not remember Pa and the cowboy, but they said the officers could
search the vessel if they wanted to.
I went to the state room and told Pa and he turned pale, and
trembled like a leaf, and the brave cowboy had a fit. They were
scared at the prospect of being taken ashore and put in an English
jail, and Pa sweat so he looked like a hippopotamus sweating blood.
Pa said they were up a stump, and asked me if I could think of
anything to help them out. I told Pa the only thing for us to do was to
take a burned cork and black up, and pretend that Pa was an African
king, on the way to England to have a conference with King Edward
about tribal affairs.
Gee, but Pa and the cowboy bit like a bass and I got a champagne
cork and burned it over the lamp and went to work bleaching us all
up, and in half an hour we were three of the blackest niggers that
ever emigrated from Africa. I even blacked the place on Pa’s leg
where the lion had chewed a hole through his pants.
We looked at ourselves in the mirror, and inspected each other, and
couldn’t find a white spot, and then I told Pa what to do when the
officers of the law came.
He was to be seated in state, on a high chair, looking like a nigger
king, and the cowboy and I were to get down on our knees before
him and kowtow.
I got a crown made out of a tin basin, and a feather duster for a
plume, and fixed Pa up so that any tribe would have gone wild over
him.
Just as we got Pa fixed up, and we had all stopped laughing, there
was a knock at the door of the state room, and I opened it, and two
semi-Englishmen came in looking for Pa and the cowboy, but when I
waved my hand and said, “Behold the King of Natabeland,” and the
cowboy bit the duster and saluted Pa, and Pa looked savage and
said in broken negro, “What, ho! varlets,” the officers said, “Beg
pardon, don’t you know, your ’ighness,” and they backed out of the
door, making salaams, and soon disappeared. Gee, it was a close
call.
Soon after the engine began to turn the screw of the propeller, and
when we looked out of the porthole the vessel was going towards the
ocean, and when I told Pa he got down off his throne and danced a
jig and hugged the cowboy, and we were having a jollification when
there was another rap at the door, and Pa jumped up on the throne
and put on his tin basin crown, and I opened the door, and the
steward of the vessel came in with his hat in his hands, and asked
Pa what he would have for supper. Pa said he didn’t care what he
had if he only got it quick, and the steward said mostly when they
were carrying African kings to England they served the meals in the
state rooms, as the kings did not care to sit at the same table with
the common herd, and Pa said that suited him all right, and the
steward added that the passengers also complained of the manners
of the African kings, and the smell that they emitted in the cabin.
There Was a Knock at the Door of the Stateroom.
Pa was going to get hot at that remark, but I was afraid the burnt
cork would rub off, so I said His Highness would be served in his
state room, and to bring the best the ship offered, and bring it quick if
he didn’t want trouble aboard, and he bowed low and went out, and
pretty soon the waiters began to bring in oysters and soup and
turkey and boiled pheasants, and ice cream, and we kings and
things didn’t do a thing to the food, and when the dishes were taken
away empty, and the wine had been drank, and the cigars brought
in, King Pa got down from his throne and just yelled, and he said to
the cowboy, “Say, Alkali Ike, wouldn’t this skin you?” and Ike said he
guessed it would when they found out what frauds we were, and
after awhile we turned in and slept just like we were at home.
For several days they fed us like they were fattening us for a
sausage factory, and the ocean was blue and calm, and we were let
out on deck near our state room for exercise, and I kept burning cork
and keeping us all blacked up nice, and Pa would repeat African
words that he had picked up, mixed with English words, and
everybody kept their distance and thought we were the real nigger
thing.
Well, everything was going along beautifully, and we thought we had
never struck such a snap in all our lives, until about the fifth day.
We had eaten so much that our appetites had gone, and Pa and the
cowboy took to drinking more and more, and one night it began to
blow, and the vessel was part of the time on one end and then on the
other, and then rolling from side to side, so that Pa couldn’t sit on his
throne without sideboards, and towards morning we all got seasick
and fell all over the state room, and Pa had a pain under his belt that
doubled him up like a jackknife, and he yelled for a doctor. I told him
never to send for a doctor until the boat tied up at a dock, because it
was dangerous, but Pa said he had to have a doctor, and the
cowboy had drank a bottle of Scotch whiskey and had laid down
under a bunk, and he was no good, so I rang for the ship’s doctor,
but I told Pa he must keep the parts of his body that were not black
covered up, or the doctor would find out he was a white man, and
then it would be all off in the nigger king masquerade.
Pretty soon the ship’s doctor came with a female trained nurse, and
Pa was a pitiful sight when he saw them. The doctor felt of Pa’s
pulse, and asked him where the pain was, and Pa, like a darn fool,
put his hand on his stomach, and before Pa could stop it the doctor
had opened Pa’s shirt, and was feeling where the appendix gets in
its work.
Pretty Soon the Ship’s Doctor Came with a Nurse.
It was a little dark, but the doctor said, “You old seney ambion, you
have got about the worst case of appendicitis that was ever pulled
off on this vessel. Boy, bring me that lantern.”
I hated to do it, because I knew Pa would be discovered, and I
delayed bringing the lantern as long as I could, but, turning the wick
down, but the doctor snatched a match so he could see Pa’s
stomach, and then he said, “Say, old skate, you are no more nigger
king than I am; you are a white man blacked up;” and the trained
nurse said, “The ’ell you say,” and then I got the lantern and they
looked at Pa’s white skin, and the doctor asked Pa what he had to
say for himself, and Pa admitted that he was a white man, but said
he had many of the estimable qualities of a nigger, but that he was
traveling incog, to throw his enemies off the track, and then Pa
fainted away from the pain, and the cowboy got sober enough to
wake up and take notice, and we told the doctor who we were, and
how we had escaped from negro tribes and draw poker sharps and
officers of the law, and the cowboy fell in love at first sight with the
trained nurse, and then Pa came to, with the aid of a bucket of water
and some whiskey, and the storm went down, and the doctor said Pa
would have to have an operation performed to remove his appendix,
and Pa kicked about it, but they took him to the ship’s hospital, with
the cowboy for an assistant nurse, and I was left alone in our state
room, the only king there was left, and when I washed off my burnt
cork I was so white and pale that they gave me medicine, and the
trained nurse held me on her lap and sang English songs to me, with
all the h’s left out, and every day she told me how they removed Pa’s
appendix, and it was swollen up bigger than a weiner sausage, but
that he would live all right, and when he got well enough the captain
would put Pa in irons for passing himself off for a nigger king, and
that he would probably be transported for life, if he couldn’t raise the
price of a ransom. And there you are.
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Transcriber’s Notes
Spelling and possible printer’s errors have mostly been retained. Likewise,
inconsistencies in hyphenation, spacing and capitalization have also been
retained. Changes made to the text are noted in the comments below.
Pg. 8: The page number for CHAPTER XIX. has been added in the Table of
Contents.
Pg. 8: The last page of the Table of Contents, containing the last chapters, is
missing in all known editions of the text.
Pg. 9 - 10: Three entries from the List of Illustrations refer to non-existent
illustrations. They have been removed because the illustrations were not in the
original publication:
“Am Going to Have Him Mended and Keep Him for a Souvenir,” Said the Pussy
Woman.
My Lawyer Told Me to Groan When Anyone Was Present.
I Never Saw a Giant Negro So Mad as That Husband Was.
Pg. 11: The last eight illustrations in the book are missing from the end of the List
of Illustrations.
Pg. 28: Punctuation fix: ‘..Orphan’ to ‘Orphan’ - Extra periods removed in block
quote at start of chapter
Pgs. 38, 58 & 197: The following three illustrations do not seem to correspond to
the printed text and are by a different illustrator, but are present in all known
editions. Their source is ‘Peck’s Bad Boy Abroad’ (1905).
Pg. 38: ‘Tossed him over the fence.’
Pg. 58: ‘Started on a stampede.’
Pg. 197: ‘Dad started to run for the fence.’
Pg. 78: Heading standardization: ‘VI.’ to ‘CHAPTER VI.’ - Missing word in heading
inserted to match other headings
Pg. 87: Caption fix: Added missing caption present in List of Illustrations: ‘When it
Exploded the Jap Was the Scaredest Person I Ever Saw.’
Text on Pg. 117, from ‘Pa has had the hardest time ...’ and until chapter end is
replicated at the beginning of Chapter X, Pg. 145, with minor differences inluding
punctuation and initial capitals on some words. Both have been retained as they
appear in the original.
Pg. 131: Heading standardization: ‘IX.’ to ‘CHAPTER IX.’ - Missing word in

heading inserted to match other headings
Pg. 157: Heading standardization: ‘XI.’ to ‘CHAPTER XI.’ - Missing word in

heading inserted to match other headings
Pg. 278: Punctuation fix: ‘Cigars Pa Told’ to ‘Cigars—Pa Told’ - Added missing
em-dash in heading block-quote
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BOY IN AN AIRSHIP ***
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Global Business Today 8th Edition Hill

Foreign Direct Investment

True / False Questions

3. Greenfield investment involves the establishment of a new operation in a foreign country.

16. A critical competitive feature of an oligopoly is independence of the major players.

18. Economists refer to knowledge “spillovers” as externalities, and there is a well-established

31. The WTO embraces the promotion of international trade in services.

34. Franchising is essentially the service-industry version of licensing, although it normally

Multiple Choice Questions

C. foreign direct investment.

B. foreign direct investment

C. reciprocal foreign investment

39. A firm becomes a(n) _____, once it undertakes FDI.

A. Anderson Corporations acquires at least 75 percent of a company.

B. Sheffield Enterprises acquires at least 60 percent of a company.

C. Arthur Enterprises acquires 98 percent of a company.

D. Maximus Corporations acquires 100 percent of a company.

E. Dream Animax acquires atleast 85 percent of a company.

A. the total accumulated value of foreign-owned assets at a given time.

B. the number of shares of a foreign firm held by the local investors.

D. the dividend amount paid by the foreign firm to local investors.

E. the flow of foreign direct investment out of a country.

D. Generally, free market economies oppose FDI.

A. abundance of cheap and skilled labor.

B. stable and dynamic economy.

C. commitment to environmental issues.

D. low corporate tax rates.

E. high trade barriers

48. Which of the following is true regarding the inflow of FDI?

B. Africa has historically been the largest recipient of inward FDI.

D. There has been an increase in the importance of China as a recipient of FDI.

E. they were the governing body of the International Monetary Fund.

A. greenfield investments are quicker to execute than mergers and acquisitions.

B. greenfield investments are undertaken to take advantage of valuable strategic assets,

E. the percentage of mergers and acquisitions is lower than greenfield investments in

A. strategic trade policy

E. infant industry argument

A. sharing a valuable technological know-how with a potential competitor.

D. the possibility of increase in trade barriers such as import tariffs or quotas.

E. increased production costs.

A. high local content requirement

B. low total landed cost

C. low value-to-weight ratio

D. low licensing tariff

E. high marginal cost

A. The presence or threat of trade barriers

B. The costs of acquiring a foreign enterprise

C. The costs of establishing production facilities in a foreign country

E. The possibility of diminishing returns

A. the costs of establishing production facilities are high.

B. the transportation costs or trade barriers are high.

C. there are problems associated with doing business in a different culture.

D. the products involved have a high value-to-weight ratio.

61. Which of the following products has a low value-to-weight ratio?

A. comparative advantage theory

C. new trade theory

65. The market imperfections approach seeks to explain:

E. the pattern of sale of products from one country to another.

E. licensing is more profitable than FDI.

67. According to internalization theory, one of the drawbacks of licensing is that:

A. it may result in a firm's technological know-how being restricted to a limited knowledge

D. its use is restricted by the government by imposing tariffs and quotas.