Washburn University

BU 355

TRUE/FALSE QUESTIONS

Chapter 8: Test Bank

1)When a firm exports its products to a foreign country, foreign direct investment occurs.

 

2. Greenfield investment involves the establishment of a new operation in a foreign country.

 

3. The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time.

 

4. The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.

 

5. The globalization of the world economy is having a negative effect on the volume of FDI.  FDI has grown significantly slower than world trade and world output.
6. According to the United Nations, the majority of changes made worldwide between 1992 and 2009 in the laws governing foreign direct investment have created a more favorable environment for FDI.

 

7. Historically, most FDI has been directed at the least developed nations of the world.

 

8. Since World War II, the United States has been the largest source country for FDI.

9. When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.

 

10. The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio.

 

11. By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing.

 

12. By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing.  A critical competitive feature of an oligopoly is independence of the major players.
13. Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

 

14. Economists refer to knowledge "spillovers" as externalities, and there is a well-established theory suggesting that firms can benefit from such externalities by locating close to their source.

 

15. According to the extreme version of radical view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination.

 

16. By the early 1990s, the radical position toward FDI was in retreat due to the rise of communism in eastern Europe.

 

17. According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently.

 

18. According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI.

 

19. The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.

 

20. Services such as telecommunications, retailing, and many financial services, where the service has to be produced where it is delivered, lend themselves well to exporting.

 

21. An acquisition does not result in a net increase in the number of players in a market.

 

22. Offshore production refers to FDI undertaken to serve the host market.

 

23. Many investor nations now have government-backed insurance programs to cover major types of foreign investment risk like the risks of expropriation (nationalization), war losses, and the inability to transfer profits back home.

 

24. Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI.

 

25. Performance requirements are controls over the behavior of the MNE's local subsidiary.  The WTO embraces the promotion of international trade in services.