Topic 7 - Foreign Direct Investment

What is Foreign Direct Investment (FDI)?

• The purchase of foreign goods and services

• The transfer of funds from one country to another without business involvement

• The investment made by a company in a foreign country through ownership of assets or business operations

• The exchange of currencies between two countries

Which of the following is a key driver of FDI flows?

• Increase in tariffs and import restrictions

• Globalization and international mergers & acquisitions

• Decrease in trade among countries

• Strict regulations limiting foreign ownership

According to the International Product Life Cycle Theory, when does a company engage in FDI?

• During the initial introduction of a product

• When the product reaches maturity in international markets

• When a product is first developed in a foreign country

• Before any exports take place

What is the main idea of Market Imperfections Theory in FDI?

• Companies invest abroad to take advantage of government incentives

• FDI occurs due to barriers in trade or specialized knowledge that make internalization more efficient

• FDI happens when companies want to maximize government control

• Countries restrict FDI to avoid economic instability

Which of the following best describes the Eclectic Theory of FDI?

• A firm will invest abroad when location, ownership, and internalization advantages align

• Companies engage in FDI to protect their domestic industries

• Firms invest internationally only when government restrictions are lifted

• Companies will only invest in developing countries

Which theory explains FDI as a means to gain market power and dominate an industry?

• International Product Life Cycle Theory

• Market Imperfections Theory

• Market Power Theory

• Eclectic Theory

Which of the following is an example of vertical integration in FDI?

• A company acquires a local business in the same industry

• A firm purchases a supplier or distributor to control its supply chain

• A company enters a joint venture with a foreign competitor

• A company franchises its brand in a new country

What is the primary concern for companies investing abroad regarding control?

• Ensuring full ownership and decision-making authority over their foreign operations

• Reducing the cost of production

• Increasing the number of joint ventures

• Maximizing government influence on business operations

What is a Greenfield Investment?

• The acquisition of an existing foreign company

• Establishing a new business operation in a foreign country from scratch

• The process of exporting raw materials to a foreign subsidiary

• A government-imposed restriction on foreign investment

Why do host countries intervene in FDI?

• To increase competition among local businesses

• To control the balance of payments and acquire resources and benefits

• To limit technological advancements

• To ensure that no foreign companies operate within their borders