WorksheetsTopic 7 - Foreign Direct Investment
Total questions: 15
Worksheet time: 8mins
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
Which of the following is a policy instrument used by host countries to promote FDI?
Increasing tariffs on foreign companies
Imposing ownership restrictions
Offering tax incentives and infrastructure improvements
Restricting capital inflows
How can home countries encourage outward FDI?
Imposing higher taxes on foreign income
Offering insurance on assets abroad and providing special tax treaties
Prohibiting companies from investing in developing nations
Imposing strict performance demands on foreign subsidiaries
Which of the following is a restriction imposed by home countries on outward FDI?
Tax breaks on foreign profits
Higher taxes on foreign-earned income
Encouraging firms to follow clients abroad
Offering government-backed loans for overseas expansion
Which of the following is an example of performance demands imposed on foreign investors?
Offering free trade agreements
Requiring companies to hire a certain percentage of local workers
Reducing tariffs on imported goods
Allowing full foreign ownership of domestic industries
What is the primary goal of balance of payments control in FDI?
To limit domestic investment opportunities
To prevent capital inflows from developing countries
To ensure a country’s financial stability by managing foreign currency reserves
To encourage businesses to relocate to other nations
