11 - FOREIGN DIRECT INVESTMENT

An example of economies of scale in financing include:

• being large-scale plant and equipment.

• being able to establish a high-tech R&D lab.

• being able to ship product in shiploads or carloads.

• being able to access the international equity, debt and currency markets.

Which of the following is NOT directly related to the benefits of FDI to host countries?

• Foreign investment creates jobs for foreigners.

• Foreign investment increases national employment.

• Foreign investment induces the transfer of technology.

• Foreign investment provides local workers with an opportunity to learn managerial skills.

Modes of FDIs DO NOT include the following _________.

• exports

• joint ventures

• construction of new plants abroad

• acquisitions of foreign firms

Furman Furnishings wants to expand its international operations in cooperation with another firm. Which of the following methods would be most appropriate for Furman?

• Joint venture

• Licensing agreement

• Greenfield investment

• Wholly-owned subsidiary

Which of the following is NOT an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

• Fewer political risks.

• Greater agency costs.

• Lower front-end investment.

• All of the above are advantages.

Greenfield investments are typically __________ and __________than cross-border acquisition.

• faster; more uncertain

• slower; more uncertain

• faster; of greater certainty

• slower; of greater certainty

Which term refers to compensation under a licensing agreement?

• Royalty

• Fixed amount

• Sales percentage

• Sales commission

Rubbermaid ended a joint venture in Europe when the partner firm refused to reinvest its profits into the development of new products. What was the source of this problem?

• Incompatibility among managers

• Inadequate access to information

• Conflicts over earnings distribution

• Loss of autonomy within the organization

Which of the following is NOT an advantage to a joint venture?

• The local partner can provide competent management at many levels.

• Possible loss of opportunity to enter the foreign market with FDI later.

• The local partner understands the customs and mores of the foreign market.

• May be a realistic alternative when 100% foreign ownership is not allowed.

Blocked funds are cash flows that

• come from a certain sector or region of the world.

• funds that can be borrowed from the home country.

• have been restricted in transfer out of a local country.

• come in regular intervals in standardized amounts or blocks.