IB-Chapter 6-Foreign Direct Investment

What is Foreign Direct Investment (FDI)?

• A type of insurance for international trade transactions.

• An investment made by a country in its own domestic businesses.

• Foreign Direct Investment (FDI) is an investment made by a company or individual in one country in business interests in another country.

• A loan provided by a bank to a foreign government.

What are the main types of FDI?

• Foreign Exchange Investment

• Real Estate Investment

• Greenfield Investment, Mergers and Acquisitions, Joint Ventures, Horizontal FDI, Vertical FDI

• Portfolio Investment

How does FDI differ from portfolio investment?

• FDI is only for government investments, while portfolio investment is for individuals.

• FDI involves direct control and investment in physical assets, while portfolio investment involves buying financial assets without direct control.

• Portfolio investment involves direct control over physical assets.

• FDI requires less capital than portfolio investment.

What are some advantages of FDI for host countries?

• Decreased foreign investment

• Reduction in local businesses

• Increased unemployment

• Advantages of FDI for host countries include economic growth, job creation, technology transfer, infrastructure improvement, and increased competition.

What are potential disadvantages of FDI?

• Improved environmental sustainability

• Increased local employment opportunities

• Potential disadvantages of FDI include loss of local control, profit repatriation, risk of monopolies, cultural homogenization, and negative environmental impacts.

• Enhanced cultural diversity

Can you name a country that is a major recipient of FDI?

• China

• Germany

• Brazil

• India

What role do multinational corporations play in FDI?

• They avoid investing in foreign markets to minimize risk.

• Multinational corporations only provide financial support without establishing operations.

• Multinational corporations primarily focus on domestic investments.

• Multinational corporations drive foreign direct investment by investing in foreign markets to establish operations, bringing technology and expertise.

How does government policy influence FDI?

• Government policy only impacts domestic investment.

• FDI is solely influenced by market demand.

• Government policy can attract or deter foreign direct investment (FDI) through regulations, incentives, and overall investment climate.

• Government policy has no effect on FDI.

What is the impact of FDI on local economies?

• FDI decreases the technological capabilities of local firms.

• FDI positively impacts local economies by creating jobs and enhancing technology, but may also lead to market dominance by foreign firms.

• FDI has no effect on local economies.

• FDI only leads to job losses in local markets.

What are some recent trends in global FDI?

• Reduction in cross-border investments due to political instability

• Recent trends in global FDI include increased investment in technology and sustainability, regional trade agreements, and supply chain diversification.

• Decreased investment in traditional manufacturing sectors

• Increased focus on local market saturation