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At the end of 2017, companies from one country collectively owned $22 billion in assets in its neighboring country. The $2 billion represents the ________ of FDI.


A) stock
B) flow
C) outflow
D) trend
E) exchange

F) C) and D)
G) B) and D)

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Geoff works in the Lagos, Nigeria, office of KleenCorp., a Baltimore-based industrial cleaning products business. He is frustrated because he wanted to interview for a management position that recently opened up in his office, but the home-country office offered the job to a home-country employee. This isn't the first time that host-country employees were bypassed for jobs. Which political ideology would be used to explain this decision?


A) pragmatic nationalism
B) comparative advantage
C) mercantilism
D) radical view
E) free market

F) A) and C)
G) B) and E)

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The ________ is one reason a company might prefer FDI over exporting.


A) presence or threat of trade barriers
B) costs of acquiring a foreign enterprise
C) costs of establishing production facilities in a foreign country
D) risk of giving away valuable technological know-how to a potential foreign competitor
E) possibility of diminishing returns

F) B) and E)
G) B) and C)

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MedFirst Instruments, a U.S. company, invests in a manufacturing facility in Mexico. The production from the Mexican facility is used entirely to serve the company's U.S. customers. MedFirst Instruments' activity is called


A) onboard production.
B) offshore production.
C) licensing.
D) contract manufacturing.
E) vertical integration.

F) A) and B)
G) B) and D)

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A business that allows franchising licenses its brand name to a foreign firm in return for a percentage of the profits.

A) True
B) False

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Historically, countries have occasionally manipulated the tax rules as a way to encourage domestic companies to invest at home.

A) True
B) False

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Ohio Manufacturing prefers FDI over licensing to retain control over know-how, manufacturing, and marketing. Ohio Manufacturing's stance constitutes the


A) comparative advantage theory.
B) distribution theory.
C) new trade approach.
D) market imperfections approach.
E) licensing theory.

F) B) and E)
G) A) and E)

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SmartStuff Inc. grants a foreign entity the right to produce and sell the firm's microprocessors in return for a royalty fee on every product sold. SmartStuff Inc.'s approach is called


A) outsourcing.
B) licensing.
C) franchising.
D) exporting.
E) diversifying.

F) B) and C)
G) C) and D)

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Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in a host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of


A) employment effects.
B) balance-of-payments effects.
C) effects on competition.
D) resource-transfer effects.
E) autonomy effects.

F) B) and C)
G) D) and E)

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The market imperfections approach seeks to explain


A) the disadvantages associated with the adoption of a completely free market view.
B) why different nations import goods from other countries even when they are more capable of producing them efficiently.
C) the preference for FDI over licensing by firms as a strategy to enter foreign markets.
D) the benefits of exercising protectionism coupled with partial adoption of free market approach.
E) the pattern of sale of products from one country to another.

F) B) and E)
G) A) and E)

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Pfingsten & Sons, a leading manufacturer of concrete blocks in the United States, is considering exporting as its FDI strategy. Exporting may not be a good option for Pfingsten & Sons because of the concrete blocks'


A) unattractiveness in foreign markets.
B) high value-to-weight ratio.
C) high cost of manufacture.
D) low weight-to-value ratio.
E) low value-to-weight ratio.

F) C) and E)
G) B) and E)

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________ are a major type of foreign investment risk that is insurable through government-backed programs.


A) Lack of funds
B) Risk of transaction loss
C) Poor strategic tie-ups
D) Risks of expropriation
E) Losses due to natural calamities

F) B) and D)
G) C) and E)

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Describe the role of the WTO in the liberalization of FDI.

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Until the 1990s, there was no consistent...

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DiamondPlus Jewelers currently has $583,000 in foreign-owned assets. This represents the ________ of the company.


A) net value
B) gross national income
C) flow of FDI
D) stock of FDI
E) gross domestic product

F) B) and C)
G) A) and E)

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The Canadian government decides to offer tax concessions to foreign companies that agree to build a manufacturing facility in Canada. This tax concession is a way to


A) encourage inward FDI.
B) discourage inward FDI.
C) encourage outward FDI.
D) discourage outward MNE.
E) discourage inward MNE.

F) A) and B)
G) B) and D)

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Although it normally involves much longer-term commitments, franchising is essentially the service industry version of


A) exporting.
B) licensing.
C) foreign direct investment.
D) greenfield investment.
E) diversifying.

F) None of the above
G) A) and D)

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If the United States invests in breakfast cereal production facilities in Canada, it would be engaging in


A) a domestic transfer.
B) offshore production.
C) franchising.
D) the difference principle.
E) an acquisition.

F) None of the above
G) A) and D)

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The management team at Yum BBQ Brands has decided not to license its product because of concerns that this will create opportunities for another company to have access to their secret recipe. For this reason, the company decides that FDI is their best course of action. Which economic theory does their choice represent?


A) comparative advantage
B) distribution theory
C) new trade theory
D) internalization theory
E) difference principle

F) C) and E)
G) B) and D)

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A firm's bargaining power is low when the host government places a low value on what the firm has to offer.

A) True
B) False

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When it comes to FDI, JogRight Corp. makes greenfield investments in various foreign countries and fully manages all foreign operations on its own. This approach to FDI is risky because of the problems associated with


A) sharing a valuable technological know-how with a potential competitor.
B) an increase in transportation costs, especially for those products that have a low value-to-weight ratio.
C) doing business in a different culture where the rules of the game may be very different.
D) the possibility of an increase in trade barriers such as import tariffs or quotas.
E) increased production costs.

F) B) and C)
G) B) and E)

Correct Answer

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