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WorksheetsMultiple-Choice Questions on FDI
Total questions: 114
Worksheet time: 3570secs
According to the provided lecture slides, what is a key characteristic that distinguishes foreign direct investment (FDI) from other types of international investment?
It is always a merger or acquisition.
It involves a short-term relationship between the investor and the foreign enterprise.
It is an investment made by a resident enterprise in one economy with the objective of establishing a lasting interest in an enterprise resident in another economy.
The ownership of the voting power is always less than 10%.
What is the minimum ownership stake in voting power that is typically taken as evidence of a "lasting interest" in a foreign direct investment?
Less than 5%
Exactly 100%
5% to 9.9%
10% or more
According to the provided slides, what is a multinational firm defined as?
An enterprise that controls and manages at least one plant in a foreign country.
An enterprise that only exports its products to other countries.
An enterprise that controls and manages plants located in at least two countries.
A firm that licenses its intellectual property to foreign companies.
In the context of FDI, what is the term for a brand-new production facility built by a firm in a foreign country?
Merger
Acquisition
Joint venture
Greenfield investment
A U.S.-based mobile phone company buying a chain of phone stores in China is an example of what type of FDI?
Vertical FDI
Horizontal FDI
Conglomerate FDI
Platform FDI
Vertical FDI is primarily aimed at what?
Enlarging market access.
Diversifying operations into an unrelated business.
Obtaining lower-cost intermediate inputs and benefiting from differences in factor-costs across national borders.
Expanding into a second country to export to a third country.
Which of the following describes a key characteristic of vertical FDI?
It is more likely to arise between countries with similar factor prices.
Trade and vertical FDI are typically substitutes.
Firms can reduce their production costs by locating different parts of the production process in different countries.
It is primarily driven by the proximity-concentration hypothesis.
FDI flows are recorded in which part of the balance of payments?
The capital account.
The current account.
The trade balance.
The financial account.
What are the three main components of FDI flows?
Profits, dividends, and interest rates.
Exports, imports, and services.
Acquisition or disposal of equity capital, reinvestment of earnings, and inter-company debt.
Stocks, bonds, and loans.
What is "FDI income" defined as?
The total revenue of a foreign affiliate.
A foreign investor's share in the earnings of its affiliates and net interest from intercompany debt.
The total value of an FDI stock.
The value of a company’s exports.
What is the phenomenon where a resident investor channels funds abroad and then brings them back to their home country as FDI?
Trans-shipping
Foreign Direct Investment
Round-tripping
Portfolio investment
According to the slides, a key reason for round-tripping is:
To increase domestic tax receipts.
To improve regulatory oversight in the home country.
To receive tax or other incentives offered to foreign investors.
To access less-developed capital markets.
Which of the following is NOT one of the FDI types based on "objectives" as per J. R. Behrman's typology?
Resource seeking FDI
Market seeking FDI
Efficiency seeking FDI
Technological seeking FDI
What is the primary objective of "resource seeking FDI"?
To identify and exploit new markets for finished products.
To gain access to distribution outlets.
To seek and secure natural resources like minerals and raw materials.
To benefit from differences in product and factor prices.
What is the main objective of "market-seeking FDI"?
To acquire a competitor.
To restructure existing investments to achieve an efficient allocation of activity.
To identify and exploit new markets for the firm's finished products.
To obtain lower-cost intermediate inputs.
What is the primary goal of "efficiency-seeking FDI"?
To establish a brand-new production facility.
To restructure existing investments to achieve an efficient allocation of international economic activity.
To acquire a group of suppliers to corner a market.
To expand into a new country to export to a third.
According to the lecture, what is the purpose of "strategic asset/capabilities seeking FDI"?
To export products from a low-cost country.
To purchase existing firms and/or assets to protect ownership-specific advantages and sustain or advance a firm's global competitive position.
To secure natural resources.
To sell finished products in a new market.
What is the difference between FDI flows and FDI stocks?
FDI flows are the value of exports, while FDI stocks are the value of imports.
FDI flows are transactions recorded during a reference period, while FDI stocks are the accumulated value held at the end of the period.
FDI flows are always larger than FDI stocks.
FDI stocks are always larger than FDI flows.
Which of the following is an example of a strategic asset/capabilities investment?
a. A firm building a new factory in a foreign country.
b. A company acquiring a new supplier to ensure a steady supply of inputs.
c. Merging with a foreign rival to strengthen joint capabilities.
d. A firm seeking a new market for its finished products.
According to Caves (2007), what are the controlling plants in the source country of an MNE referred to as?
a. Affiliates
b. Subsidiaries
c. Parents
d. Branches
What is the term for a direct investment enterprise of which 100% of the voting power is held by the direct investor?
a. Associate
b. Affiliate
c. Subsidiary
d. Branch
A joint venture is described as which type of investment?
a. A direct investment to purchase an existing company.
b. A direct investment to build a new facility.
c. An enterprise jointly owned by two or more firms through an equity investment.
d. A legal consolidation of more than one firm into a new entity.
The provided slides state that MNEs account for approximately what percentage of international trade?
a. One-third
b. One-fourth
c. One-h
The provided slides state that MNEs account for approximately what percentage of international trade?
One-third
One-fourth
One-half
Three-quarters
What is a "subsidiary" in the context of FDI?
An enterprise where the direct investor holds less than 10% of the voting power.
A direct investment enterprise where the direct investor holds 50% or more of the voting power.
A direct investment enterprise where the direct investor holds 10-50% of the voting power.
An enterprise where the direct investor holds 100% of the voting power.
According to the slides, what is one of the ways to determine the nationality of a TNC?
The country with the highest number of employees.
The country where the firm's sales are highest.
The country with the most affiliates.
The country where the principal seat or headquarters of the TNC is located (siège social).
What does "trans-shipping" refer to?
The direct shipment of goods from one country to another.
The shipment of goods only by sea.
The shipment of goods to an intermediate destination and then to another final destination.
The process of disguising a product's value.
The provided slides indicate that a key reason for the downside of vertical FDI, as exemplified by Nike, is the ability for companies to:
Escape regulated labor markets of industrialized countries.
Obtain higher-cost intermediate inputs.
Increase production costs.
Reduce their dependence on foreign partners.
The proximity-concentration hypothesis is a main point of which type of FDI?
Vertical FDI
Horizontal FDI
Platform FDI
Strategic asset-seeking FDI
According to the lecture, what is the main attraction in horizontal FDI, especially if trade costs are high?
High plant-level economies of scale in the home country.
Proximity to foreign consumers.
Low marginal costs in the foreign country.
The ability to diversify operations.
In the context of vertical FDI, manufacturing in a low-cost foreign country is most attractive for which type of firms?
Low productivity firms.
Firms with high fixed costs.
High productivity firms.
Firms with low marginal costs.
What is the key feature shown in the graph on page 21 regarding the profitability of foreign sourcing (πI) versus domestic sourcing (πD)?
Both are decreasing in productivity.
The profit from domestic sourcing (πD) is increasing faster than foreign sourcing (πI).
The profit from foreign sourcing (πI) is increasing in productivity faster than domestic sourcing (πD).
The profit from foreign sourcing (πI) is a constant value.
The lecture notes indicate that the reality of MNEs has become more complex than the simple horizontal-vertical dichotomy. What is one reason for this complexity?
MNEs are now only engaged in one type of FDI.
MNEs no longer use mergers and takeovers.
Most MNEs are engaged in both horizontal and vertical investments abroad.
MNEs are only attracted to countries with large consumer markets.
Which of the following is NOT a reason for round-tripping?
To get preferential tax treatment.
To get greater legal protection for investments.
To conceal the investor's identity.
To pay higher taxes in the home country.
What is the definition of "licensing" as a mode of entry into a foreign market?
Establishing a separate firm jointly owned with a foreign firm.
Purchasing part or all of a foreign firm.
The owner of intellectual property grants another firm the right to use it in exchange for compensation.
The firm undertakes the export transaction itself.
The lecture notes point out that FDI data do not fully reflect the economic importance of MNEs because:
FDI only measures cross-border flows and stocks.
They exclude financial resources that foreign affiliates may raise in the host economy.
They do not fully capture the overall operations of MNEs.
All of the above.
What is the key difference between an "associate or affiliate" and a "subsidiary"?
Associates/affiliates have more than 50% voting power, while subsidiaries have less.
Associates/affiliates have a 100% ownership stake.
Associates/affiliates have a 10-50% ownership stake, while subsidiaries have 50% or more.
The direct investor has no voting power in an associate/affiliate.
A company acquiring a complementary business in another country is an example of what type of FDI?
Horizontal FDI
Vertical FDI
Conglomerate FDI
Platform FDI
Which of the following is NOT one of the five themes covered in the course, as outlined in the lecture slides?
Trends in FDI flows.
How FDI affects growth and income inequality.
The emergence of global value chains.
The history of the World Trade Organization (WTO).
The lecture notes cite which organization as a source for the most recent "World Investment Report"?
The World Bank
The World Trade Organization (WTO)
The OECD
UNCTAD
Which of the following is an example of a mode of entry that is NOT considered FDI?
Mergers and acquisitions
Greenfield investments
Joint ventures
Indirect exporting
What is "trans-shipping" sometimes used for?
To lower shipping costs.
To speed up delivery times.
To avoid regulatory oversight.
To disguise a product's place of origin.
What is the primary purpose of "platform (or export platform) investment"?
To enlarge market access.
To gain access to lower-cost inputs.
To expand into a second country in order to export to a third country.
To diversify operations into an unrelated business.
Which of the following is an example of a "contractual" mode of entry into a foreign market?
Joint ventures
Mergers and acquisitions
Greenfield investment
Subcontracting
The lecture notes suggest that Nike "escaped the regulated labor markets of industrialized countries" by:
Leaving management control over large labor forces to third parties.
Moving all of its production to the United States.
Only selling shoes in high-wage countries.
Engaging in horizontal FDI.
The lecture mentions that multinational enterprises (MNEs) account for roughly what portion of global output and GDP?
One-half
One-fourth
One-third
Two-thirds
When a French perfume brand sets up a manufacturing plant in the USA to export products to other countries in America, Asia, and Europe, this is an example of what type of FDI?
Vertical FDI
Horizontal FDI
Conglomerate FDI
Platform (or export platform) investment
The 'Foreign Market Entry Menu' table categorizes modes of entry into which four groups?
Domestic, Exporting, Franchising, Investment
Domestic, Exporting, Alliances, Investment
Domestic, Exporting, Contractual, Investment
Domestic, Exporting, Mergers, Acquisitions
What is one of the reasons MNEs are attracted to specific countries?
The country has no competitors.
The country has no taxes.
The country has a single regulatory body.
Access to large and growing markets of consumers.
Based on the provided image and text, which region has the largest concentration of company headquarters displayed on the map?
South America
Africa
North America
Asia
The chart on mergers and acquisitions in the sports industry shows a significant increase in the number of transactions starting around what year?
1985
1990
1995
1998
What is the difference between a 'merger' and an 'acquisition'?
An acquisition is a legal consolidation of more than one firm, while a merger is a purchase of an existing company.
They are the same thing.
An acquisition is the purchase of an existing company, while a merger is the legal consolidation of more than one firm into a new entity.
A merger involves building a new facility, while an acquisition involves purchasing one.
The term 'lasted interest' in the definition of FDI implies what?
The investment will be sold within one year.
The investment is short-term.
The existence of a long-term relationship and a significant degree of influence on the management of the enterprise.
The investor is an individual, not a corporation.
What are the three methods for determining the nationality of a transnational corporation (TNC)?
Location of sales, location of assets, and number of employees.
Place of incorporation, principal seat of administration (siège social), and control or substantial interest based on majority shareholders.
Country of origin of the CEO, country of origin of the board, and country of origin of the shareholders.
Location of R&D, location of manufacturing, and location of marketing.
In a vertical FDI scenario, where are 'headquarter services' typically located?
In the labor-abundant country.
In the country with the lowest marginal costs.
In the capital-abundant country.
In a third country for export.
Based on the graph on page 21, why do the most productive firms tend to opt for vertical FDI?
It has lower fixed costs.
It has higher marginal costs.
More productive firms have larger sales and therefore benefit more from adopting a low marginal costs-high fixed cost technology.
Domestic sourcing is always more profitable for high-productivity firms.
The lecture slide on MNEs and the World Economy quotes Cadestin et al. (2019), who state that MNEs account for what portion of global employment?
One-half
One-third
One-fourth
Three-quarters
What is the difference between an 'associate or affiliate' and a 'branch' in the context of FDI control levels?
An associate/affiliate has less than 10% voting power.
A branch has a 10-50% voting power stake.
An associate/affiliate has a 10-50% voting power, while a branch has 100%.
They are the same thing.
What is one of the reasons for a domestic investor to engage in round-tripping to receive greater protections?
Their home economy has well-developed capital markets.
Their home economy has investment treaties that give greater protections to foreign investors.
They want to pay more taxes.
They want to increase regulatory oversight.
What is the definition of a multinational firm, according to Caves (2007)?
An enterprise that operates in two or more countries.
A firm that exports its products to at least two countries.
An enterprise that controls and manages plants located in at least two countries.
A company with a market capitalization of over $1 billion.
In the definition of a multinational firm, the controlling plants in the source country are called what?
Subsidiaries
Affiliates
Partners
Parents
In the definition of a multinational firm, the subsidiary plants in the host country are called what?
Parents
Branches
Affiliates
Headquarters
What is the minimum ownership stake in a foreign enterprise that is usually associated with control, according to government statistics?
5%
10%
25%
50%
What percentage of international trade do multinationals account for, according to Cadestin et al. (2019)?
One-third
One-fourth
One-half
Three-fourths
What percentage of global output and GDP do multinationals account for?
One-half
One-third
One-fourth
One-fifth
What percentage of employment in the global economy do multinationals account for?
One-half
One-third
One-fourth
One-fifth
What is Foreign Direct Investment (FDI) defined as?
An investment made by an individual in a foreign stock market.
An investment made by a resident enterprise in one economy with the objective of establishing a lasting interest in an enterprise in another economy.
A loan given by a bank to a foreign company.
The purchase of foreign government bonds.
What is taken as evidence of a 'lasting interest' and 'significant degree of influence' in a foreign enterprise?
The establishment of a joint venture.
The signing of a long-term contract.
What is taken as evidence of a "lasting interest" and "significant degree of influence" in a foreign enterprise?
The establishment of a joint venture.
The signing of a long-term contract.
The appointment of a board member.
The ownership of 10% or more of the voting power.
What is a "subsidiary"?
A direct investment enterprise where 10-50% of the voting power is held by the direct investor.
A direct investment enterprise where 100% of the voting power is held by the direct investor.
A direct investment enterprise where 50% or more of the voting power is held by the direct investor.
A company that is not controlled by a multinational firm.
What is an "associate" or "affiliate"?
A direct investment enterprise where 50% or more of the voting power is held by the direct investor.
A direct investment enterprise where 100% of the voting power is held by the direct investor.
A direct investment enterprise where 10-50% of the voting power is held by the direct investor.
A company that is not controlled by a multinational firm.
What is a "branch"?
A direct investment enterprise where 10-50% of the voting power is held by the direct investor.
A direct investment enterprise where 50% or more of the voting power is held by the direct investor.
A direct investment enterprise where 100% of the voting power is held by the direct investor.
A company that is not controlled by a multinational firm.
What is the FDI mode of entry that involves establishing a brand-new production facility?
Mergers and Acquisitions
Joint venture
Licensing
Greenfield
What is the FDI mode of entry that involves the purchase of an existing company?
Acquisition
Merger
Greenfield
Joint Venture
What is the FDI mode of entry that involves the legal consolidation of more than one firm into a new entity?
Acquisition
Merger
Greenfield
Joint Venture
What is the FDI mode of entry that involves two or more firms forming a jointly owned enterprise through equity investment?
Acquisition
Merger
Greenfield
Joint venture
What is a "horizontal" FDI?
An investment aimed at obtaining lower-cost intermediate inputs.
An investment in a business that is unrelated to the core business.
An investment aimed at enlarging market access by establishing the same type of business operation in a foreign country.
An investment to build a brand new facility.
What is a "vertical" FDI?
An investment aimed at enlarging market access.
An investment to expand into a second country to export to a third country.
An investment aimed at obtaining lower-cost intermediate inputs and benefiting from differences in factor-costs across national borders.
An investment in a business that is unrelated to the core business.
What is the primary focus of the "proximity-concentration hypothesis"?
The importance of a host country's political stability.
The role of cultural differences in FDI.
The attraction of proximity to foreign consumers, especially if trade costs are high.
The importance of a skilled labor force.
What is "platform" or "export platform investment" FDI?
An investment aimed at obtaining lower-cost intermediate inputs.
An investment in a business that is unrelated to the core business.
An investment to expand into a second country to export products to a third country.
An investment to acquire an existing company.
What is "conglomerate" FDI?
An investment aimed at enlarging market access.
An investment in a foreign business that is unrelated to the investing company's core business.
An investment to obtain lower-cost intermediate inputs.
An investment to build a brand new facility.
According to the slides, what is a "headquarter service"?
A physical location where a firm's products are sold.
A service provided by a government to multinational firms.
Typical activities performed by headquarters of multinationals such as R&D, financing, and marketing.
A service that is outsourced to another country.
According to the slides, what is a downside of vertical FDI?
Increased transport costs.
Potential for low labor standards.
Higher fixed costs.
Lower marginal costs.
What are the three main components of FDI flows?
Mergers, acquisitions, and joint ventures.
Acquisition or disposal of equity capital, reinvestment of earnings, and inter-company debt.
Exports, imports, and tariffs.
Loans, bonds, and stocks.
What do FDI flows represent?
The accumulated value held at the end of a reference period.
Transactions recorded during a reference period (typically year or quarter).
The total value of a company's assets.
A country's GDP.
What do FDI stocks represent?
Transactions recorded during a reference period.
The accumulated value held at the end of a reference period (typically year or quarter).
The total value of a country's exports.
The total value of a country's imports.
What is "FDI income"?
The total profit of a multinational firm.
The amount of tax a multinational firm pays.
A foreign investor's share in the earnings of its affiliates and net interest from intercompany debt.
The salary paid to the employees of a multinational firm.
Why might FDI data not fully reflect the economic importance of multinational enterprises (MNEs)?
Because FDI only measures part of what foreign affiliates use to finance their activities.
Because FDI excludes financial resources MNEs may raise in the host economy.
Because FDI is a cross-border flow/stock and does not capture overall operations.
All of the above.
What is the term for economic transactions that reflect the overall operations of MNEs, whether or not financed by the direct investor?
FDI flows
FDI stocks
FDI income
Activities of multinational enterprises (AMNE)
What is a reason for "round-tripping" mentioned in the slides?
To increase regulatory oversight.
To receive tax or other incentives offered to foreign investors.
To decrease flexibility in managing capital.
To avoid investment treaties.
What is "round-tripping"?
What is "round-tripping"?
A phenomenon where a foreign firm invests in a domestic firm and then sells it back.
A phenomenon where a resident investor in a given country channels funds abroad and then returns them to the country in the form of FDI.
A type of FDI that is aimed at obtaining lower-cost intermediate inputs.
A type of FDI that is aimed at enlarging market access.
What is a key characteristic of "Greenfield" FDI?
It involves the purchase of an existing company.
It is a legal consolidation of firms.
It involves building a brand-new production facility.
It is a jointly owned enterprise.
What is "direct exporting"?
Another firm acts as a sales agent.
The firm undertakes the export transaction itself.
A contract with materials and specifications.
A license to a foreign firm to produce abroad.
What are the five themes covered in the lecture series?
FDI types, FDI trends, FDI theories, FDI and trade changes, and inward FDI effects.
FDI, trade, geography, world economy, and global value chains.
FDI definitions, FDI and politics, FDI and society, FDI and the environment, and FDI and technology.
FDI, trade, globalization, geopolitics, and international relations.
How much weight does the final exam have in the course assessment?
10%
30%
40%
50%
What is the weight of the group presentation on a selected MNE and FDI?
10%
30%
40%
50%
What is the weight of class participation?
10%
30%
40%
50%
The slide mentions a "new geography of geopolitical competition" as a consequence of what?
The decline of international trade.
The rise of protectionism.
The emergence of global value chains and global production networks.
The increase in tariffs.
What is the title of the UNCTAD publication mentioned as a source?
The Global Value Chain Development Report 2023.
The World Investment Report 2025.
The Kearney FDI Confidence Index.
Measuring Foreign Direct Investment.
What is the Kearney FDI Confidence Index®?
A report on global trade trends.
An annual survey of global business executives that ranks markets likely to attract the most investment.
A database of FDI statistics.
A book on international economics.
According to the map of 500 company headquarters, what does the size of a circle represent?
The number of employees.
Company revenue.
Company profits.
The number of subsidiaries.
Which of the following is NOT listed as a top multinational company invested in Vietnam in 2025?
Samsung Electronics Vietnam
Nestlé Vietnam
Intel Vietnam
Apple Vietnam
What is the definition of "Licensing"?
A contract with materials and specifications.
Owner of IPR grants another firm the right to use that intellectual property in exchange for royalties.
A license with conditions to ensure consistency.
An agreement between a home firm and a host firm to share activities.
What is the definition of "Franchising"?
A license to a foreign firm to produce abroad.
An agreement between a home firm and a host firm to share activities.
Allowing another firm the right to use an entire business system in exchange for compensation, while maintaining quality control.
A contract with materials and specifications.
What is the definition of "subcontracting"?
The firm undertakes the export transaction itself.
A contract with materials and specifications (a.k.a. outsourcing and contract manufacturing).
Another firm acts as a sales agent.
A license to a foreign firm to produce abroad.
What is a "conglomerate FDI"?
When a company establishes the same type of business operation in a foreign country.
When a business acquires a complementary business in another country.
When a company invests in a foreign business that is unrelated to its core business.
When a firm builds a brand-new production facility abroad.
Why would a firm choose to manufacture in a low-cost foreign country?
Because it implies lower fixed costs.
Because it is attractive for low productivity firms.
Because it implies higher fixed costs but lower marginal costs, which is attractive for high productivity firms.
Because it is a substitute for trade.
What is "Resource seeking FDI" aimed at?
To identify and exploit new markets.
To restructure existing investments to achieve an efficient allocation of international economic activity.
To seek and secure natural resources.
To purchase existing firms and assets to protect ownership-specific advantages.
What is "Market-seeking FDI" aimed at?
To seek and secure natural resources.
To identify and exploit new markets for the firm's finished products.
To restructure existing investments to achieve an efficient allocation of international economic activity.
To purchase existing firms and assets to protect ownership-specific advantages.
What is "Efficiency seeking FDI" aimed at?
To seek and secure natural resources.
To identify and exploit new markets for the firm's finished products.
To restructure its existing investments to achieve an efficient allocation of international economic activity of the firm.
To purchase existing firms and assets to protect ownership-specific advantages.
What is "Strategic asset/capabilities seeking FDI" aimed at?
To seek and secure natural resources.
To identify and exploit new markets.
To restructure its existing investments.
To protect or augment the existing specific advantages of the investing firms and/or to reduce those of their competitors.
What account in the balance of payments are FDI flows recorded in?
The current account.
The financial account.
The capital account.
The trade account.
What is a key characteristic of a "Merger"?
It is a direct investment to build a new facility.
It is a legal consolidation of more than one firm into a new entity.
It is a purchase of an existing company.
It is a jointly owned enterprise.
