Chapter 08Foreign Direct Investment True / False Questions 1. When a firm exports its products to a foreign country, foreign direct investment occurs. True False 2. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. True False 3. Greenfield investment involves the establishment of a new operation in a foreign country. True False 4. The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time. True False 5. The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time. True False 6. The globalization of the world economy is having a negative effect on the volume of FDI. True False 7. FDI has grown significantly slower than world trade and world output. True False 8-1© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.8. According to the United Nations, majority of changes made worldwide between 1992 and 2008 in the laws governing foreign direct investment have created a more favorable environment for FDI. True False 9. Historically, most FDI has been directed at the least developed nations of the world. True False 10. Since World War II, the United States has been the largest source country for FDI, a position it retained during the late 1990s and early 2000s. True False 11. Greenfield investments are quicker to execute than mergers and acquisitions. True False 12. When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. True False 13. The attractiveness of exporting increases in comparison to FDI or licensing when products have a low value-to-weight ratio. True False 14. By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing. True False 15. By limiting imports through quotas, governments reduce the attractiveness of FDI and licensing. True False 16. A critical competitive feature of an oligopoly is independence of the major players. True False 17. Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. True False 8-2© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.18. 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. True False 19. 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. True False 20. By the early 1990s, the radical position toward FDI was in retreat due to the rise of communism in eastern Europe. True False 21. According to the free market view, countries should specialize in the production of those goods and services that they can produce most efficiently. True False 22. According to the pragmatic nationalist view, no country should ever permit foreign corporations to undertake FDI. True False 23. World trade has been growing twice as fast as the growth in the volume of FDI worldwide. True False 24. The indirect employment effects of FDI are often as large as, if not larger than, the direct effects. True False 25. 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. True False 26. An acquisition does not result in a net increase in the number of players in a market. True False 8-3© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.27. Offshore production refers to FDI undertaken to serve the host market. True False 28. 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. True False 29. Ownership restraints and performance requirements are the two most common ways in which host governments restrict FDI. True False 30. Performance requirements are controls over the behavior of the MNE’s local subsidiary. True False 31. The WTO embraces the promotion of international trade in services. True False 32. The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting. True False 33. Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a “book of blueprints.” True False 34. Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing. True False 35. Despite the move toward a free market stance in recent years, many countries still have a rather pragmatic stance toward FDI. True False 36. A firm's bargaining power is low when the host government places a low value on what the firm has to offer. True False 8-4© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distributionin any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Multiple Choice Questions 37. A computer manufacturing firm from the United States invests in a