Topic 7_Foreign Direct Investment (FDI)

Which of the following is NOT a key driver of Foreign Direct Investment (FDI)?

• Globalization

• International mergers and acquisitions

• Domestic market saturation

• Increase in tariff barriers

Why did developing countries attract greater FDI inflows than developed countries in 2012?

• They had stronger financial markets

• They offered lower production costs and larger emerging markets

• They had stricter investment regulations

• They had more developed infrastructure

According to the International Product Life Cycle theory, where does a company typically produce its goods during the new product stage?

• In foreign markets

• In the home country

• In low-cost developing countries

• Through offshore outsourcing

What is the primary reason firms engage in FDI according to the Market Imperfections (Internalization) Theory?

• To gain access to cheap labor

• To exploit arbitrage opportunities

• To remove inefficiencies caused by market imperfections

• To avoid taxation in home countries

Which of the following is NOT a key advantage in the Eclectic Theory of FDI?

• Location advantage

• Ownership advantage

• Internalization advantage

• Profit maximization advantage

In the Market Power Theory, what strategy do firms use to establish dominance in an industry through FDI?

• Currency hedging

• Vertical integration

• Product diversification

• Licensing and franchising

Which factor is a key consideration when firms decide whether to purchase an existing business or establish a new subsidiary abroad?

• Local government regulations

• Whether the firm’s competitors are also investing abroad

• The cost and time required for a greenfield investment

• Availability of financial incentives

What is the main benefit of rationalized production in FDI decisions?

• It ensures high employee retention rates

• It reduces production costs by manufacturing components where it is cheapest

• It simplifies tax obligations

• It increases government intervention in business operations

Why do companies choose to follow their clients when making FDI decisions?

• To maintain strong business relationships and ensure supply chain integration

• To increase operational inefficiencies

• To comply with foreign government regulations

• To test market demand before making a full investment

What is a “greenfield investment” in the context of FDI?

• An investment in environmentally friendly businesses

• Building a new facility from scratch in a foreign country

• Acquiring an existing foreign company

• A temporary market entry strategy