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Q:
Which of the following refers to a 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union?
A.Andean Pact
B.ASEAN
C.Mercosur
D.CARICOM
E.Caribbean Single Market and Economy
Q:
Which of the following is a major issue confronting the North American Free Trade Agreement?
A.Economic stability
B.Reduction in purchasing power
C.Political stability
D.Expanding the membership of the agreement
E.Lack of resources
Q:
Which of the following is a significant impact of the North American Free Trade Agreement (NAFTA)?
A.It led to decreased economic stability in Canada.
B.It led to a major trade deficit for Canada.
C.It helped create the background for increased political stability in Mexico.
D.It led to a trade surplus for all the three member nations.
E.It led to a reduction in purchasing power of consumers in America.
Q:
An argument against the North American Free Trade Agreement centered on the fear that ratification would result in:
A.low interest rates in the Unites States and Canada.
B.mass exodus of jobs from the United States into Mexico.
C.a move toward a common currency for NAFTA member nations.
D.competition from the members of the European Union.
E.high inflation in the United States and Canada.
Q:
Which of the following is an expected consequence of the implementation of the North American Free Trade Agreement?
A.Low-skilled jobs will be moved out to Mexico resulting in lowering of average wage rates in the United States and Canada.
B.Increased imports from Mexico will help reduce the huge trade deficit for United States and Canada.
C.Lower incomes of the Mexicans would allow them to import fewer U.S. and Canadian goods, thereby decreasing demand.
D.A large number of Mexican firms will hire low-skilled workers from the United States.
E.Some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs.
Q:
Which of the following is true of the provisions of the North American Free Trade Agreement?
A.It does not allow financial institutions unrestricted access to the Mexican market.
B.It abolishes special treatment (protection) given to Mexican energy and railway industries.
C.It allows lowering of national environmental standards to lure investment.
D.It seeks the removal of most barriers on the cross-border flow of services.
E.It does not deal with the protection of intellectual property rights.
Q:
Which of the following is true of the criteria to qualify for membership to the European Union?
A.The applicants were not required to privatize state assets.
B.The applicants were not required to adopt EU laws.
C.The applicants were required to tame inflation.
D.The applicants were required to refrain from restructuring industries.
E.The applicants were required to prevent deregulation of markets.
Q:
Which of the following refers to a permanent bailout fund, worth about €500 billion, set up by the euro zone nations to restore confidence in the euro?
A.European Fiscal Union
B.European Fiscal Compact
C.Troubled Assets Relief Program
D.European Stability Mechanism
E.European Financial Stability Facility
Q:
Which of the following is true of the euro since its establishment in 1999?
A.The value of the euro has been stable against the U.S. dollar.
B.The euro's value has steadily appreciated against the U.S. dollar.
C.The euro's value initially appreciated and then steadily depreciated against the U.S. dollar.
D.The euro has had a volatile trading history against the U.S. dollar.
E.The value of the euro has been constant when compared to the U.S. dollar.
Q:
Similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy in a(n):
A.managed currency zone.
B.open exchange regime.
C.optimal currency area.
D.free trade area.
E.advanced monetary zone.
Q:
Which of the following is a reason for Great Britain, Denmark, and Sweden to stay out of the euro zone?
A.The dollar peg advocated by some members of the European Union
B.The implied loss of national sovereignty to the European Central Bank
C.The volatility of the euro
D.The reluctance to compete directly against the U.S. dollar
E.The reluctance to be considered an optimal currency area
Q:
The Maastricht Treaty called for:
A.establishment of the independent European Central Bank (ECB).
B.the abolition of restrictions on cabotage.
C.establishment of the European Parliament.
D.the formation of a single market for the European Union.
E.placing restrictions on foreign exchange transactions between member countries.
Q:
Which of the following is a drawback of adopting the euro?
A.Loss of control over national monetary policy
B.Increase in the cost of capital
C.Reduction in the liquidity of capital markets
D.Reduction of price differentials within the euro zone
E.Loss of investment options open to both individuals and institutions
Q:
Over time the euro will impact the pan-European capital market by leading to:
A.an increase in the cost of capital.
B.a decline in the overall level of savings and investment.
C.an increased efficiency with which investment funds are allocated.
D.reduced liquidity in the market.
E.reduced competition among European producers.
Q:
A key advantage of adopting the euro is that it:
A.helps in reduction of competition in Europe.
B.has prevented the development of a highly liquid pan-European capital market.
C.lowers foreign exchange and hedging costs in Europe.
D.insulates Europe from international competition.
E.increases the range of investment options open to institutions only.
Q:
A benefit of adopting the euro as a common currency is that it:
A.makes it easier to compare prices across Europe.
B.makes Europe an optimal currency area.
C.increases the range of investment options open only to institutions.
D.leads to higher prices, which translate into substantial gains for European producers.
E.decreases competition because it has become harder for consumers to shop around.
Q:
Establishment of the euro required participating national governments to:
A.have a sound fiscal situation.
B.have stable exchange rates.
C.be democratic in nature.
D.give up control over monetary policy.
E.have a high degree of price stability.
Q:
Which of the following countries has adopted the euro as its currency?
A.Great Britain
B.France
C.Denmark
D.Sweden
E.Switzerland
Q:
Which of the following comprises the euro zone?
A.The 27 member nations of the European Union
B.The member nations of the European Union and the applicants to the union
C.The 18 member nations who use the euro as their currency
D.The member nations of the European Union and countries who have pegged their currencies to the euro
E.The 21 member nations that have their members in the European Parliament
Q:
Which of the following treaties committed European Community members to adopt a common currency by January 1, 1999?
A.The Maastricht Treaty
B.The Treaty of Rome
C.The Treaty of Lisbon
D.The Montreal Treaty
E.The Treaty of Paris
Q:
Which of the following is true of the Single European Act?
A.It proposed to place frontier controls among European Community countries.
B.It sought to abolish the application of the principle of "mutual recognition" to product standards.
C.It proposed to reduce costs indirectly by preventing national suppliers to compete.
D.It provided the impetus for the restructuring of substantial sections of European industry.
E.It proposed to reduce costs directly by preventing lower-cost suppliers into national economies.
Q:
Which of the following proposed that all impediments to the formation of a single market be eliminated by December 31, 1992, resulting in the Single European Act?
A.Delors Commission
B.Andean Pact
C.Treaty of Rome
D.North American Free Trade Agreement
E.Maastricht Treaty
Q:
Which of the following was a change proposed by the Single European Act?
A.Establish frontier controls among European Community countries
B.Increase the resources required for complying with trade bureaucracy
C.Place barriers to competition in the retail banking and insurance businesses
D.Apply the principle of "mutual recognition" to product standards
E.Reduce costs directly by not allowing lower-cost suppliers into national economies
Q:
What is franchising? With the help of a suitable example, explain how franchising can be a profitable alternative to FDI.
Q:
What are the different types of industries for which licensing is not a good option?
Q:
Describe the role of the WTO in the liberalization of FDI.
Q:
How can governments restrict the outward flow of FDI?
Q:
What are the benefits of FDI to the home (source) country?
Q:
Briefly describe the benefits of inward FDI for a host country that arise from employment effects and balance-of-payments effects.
Q:
Briefly describe the changes taking place in the attitudes toward FDI in countries across the globe.
Q:
In the context of FDI, describe the political ideologies of the radical view, the free market view, and pragmatic nationalism.
Q:
Describe Dunning's arguments regarding the location-specific advantages.
Q:
Under what circumstances will a firm favor foreign direct investment over exporting as an entry strategy?
Q:
In the context of the internalization theory, explain why licensing may not be an attractive option.
Q:
When a firm exports, it need not bear the costs associated with FDI, and it can reduce the risks associated with selling abroad by using a native sales agent. Exporting, however, is not without its limitations. Discuss the most common limitations of exporting as compared to FDI.
Q:
Despite its advantages, FDI has been described as an "expensive" and "risky" international growth strategy. Other things being equal, why is FDI expensive and risky when compared to licensing and exporting?
Q:
"Firms prefer to acquire existing assets rather than undertake greenfield investments while contemplating FDI." Explain the reasons that support this argument.
Q:
What is meant by the term foreign direct investment? Describe the difference between the flow of foreign direct investment and the stock of foreign direct investment.
Q:
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.
Q:
Firms for which licensing is not a good option include those in:
A.low-technology industries.
B.global oligopolies.
C.industries characterized by low cost pressures.
D.industries where transportation costs are high.
E.industries which need to have low control over foreign operations.
Q:
Which of the following is NOT an option, due to the fact that many services have to be produced where they are sold?
A.FDI
B.Franchising
C.Greenfield investment
D.Exporting
E.Outsourcing
Q:
Host governments use a range of controls to restrict inward FDI. The two most common are:
A.monetary restraints and prohibition on investing in certain countries.
B.voluntary export restrictions and employment restraints.
C.ownership restraints and performance requirements.
D.tax concessions and government-backed insurance.
E.employment restraints and tax deductions.
Q:
To encourage inward FDI, it is increasingly common for governments to:
A.offer tax concessions to foreign firms that invest in their countries.
B.exclude foreign companies from specific industries.
C.require that local investors own a significant proportion of the equity in a joint venture.
D.impose high custom duties on foreign firms.
E.prohibit MNEs from joining a cartel.
Q:
Which of the following is a home-country policy for limiting outward FDI?
A.Eliminating double taxation of foreign income
B.Manipulating tax rules to encourage the firms to invest at home
C.Withdrawing government-backed insurance programs provided to local investors
D.Reducing interest rates earned on domestic investments
E.Prohibiting organizations from entering into a cartel
Q:
As an incentive to encourage domestic firms to undertake FDI, many countries have:
A.eliminated double taxation of foreign income.
B.started imposing local content requirements.
C.imposed higher import tariffs.
D.abolished the use of custom duties.
E.eliminated subsidies.
Q:
Which of the following is 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
Q:
Offshore production refers to FDI undertaken:
A.to focus on extractive industries, such as oil and gas.
B.to serve the home market.
C.in shipping industries.
D.to decrease the prices of products in the host countries.
E.to capture tax benefits in the host country.
Q:
The most important concerns regarding the costs of FDI for the home country center on the:
A.balance-of-payments and employment effects of outward FDI.
B.technology capture effect and the perceived loss of national sovereignty.
C.reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D.import of substantial input from abroad and being held to "economic ransom."
E.exposure to foreign markets and the decreased costs of production.
Q:
Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?
A.It decreases the level of competition in the host country.
B.It tends to increase the prices of the products.
C.It leads to a high rate of unemployment in the long run.
D.When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.
E.When a foreign subsidiary sends its profits to its home country, it results in the depletion of gold reserves of the host country.
Q:
Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?
A.It drives down prices and increases the economic welfare of consumers.
B.It raises unemployment levels.
C.It causes firms to fight for scarce capital investments.
D.It leads to an oligopolistic market and unfair pricing.
E.It leads to decreased productivity, product and process innovations, and lesser economic growth.
Q:
Which of the following is the only way to support a current account deficit in the long run?
A.Borrowing from the IMF
B.Selling assets to foreigners
C.Divesting stock in domestic corporations
D.Purchasing stocks, bonds, and real estate in other countries
E.Issuing negotiable instruments like the bills of exchange
Q:
When a country is importing more goods and services than it is exporting, it is incurring a(n):
A.trade surplus.
B.current account deficit.
C.positive balance of payment.
D.economic recession.
E.net capital inflow.
Q:
A current account deficit is also known as a(n):
A.stock deficit.
B.inventory deficit.
C.external deficit.
D.tariff deficit.
E.trade deficit.
Q:
Which account in the balance of payments records transactions involving the export and import of goods and services?
A.Current
B.Foreign
C.Internal
D.Tariff
E.Savings
Q:
Which of the following are national accounts that track both payments to and receipts from other countries?
A.Equity
B.Dematerialized
C.Balance of trade
D.Asset
E.Balance-of-payments
Q:
Indirect effects of FDI on employment in a host country arise when:
A.a foreign MNE employs a number of host-country citizens.
B.jobs are created because of increased local spending by employees of an MNE.
C.an MNE brings in managers from the home country for its operations in the host country.
D.an MNE recruits people from the host country for research and development.
E.an MNE sends home country employees to host countries for training.
Q:
Direct effects of FDI on employment in the host country arise when a foreign MNE:
A.brings in managers trained in the latest management techniques from the home country.
B.creates jobs because of increased local spending by employees of the MNE.
C.employs a number of host country citizens.
D.causes local suppliers to hire more people.
E.creates jobs in the supporting industries.
Q:
Which of the following statements is most likely to be true regarding the effects of FDI on employment?
A.FDI does not result in job creation.
B.FDI has only indirect effects on employment in the host country.
C.The indirect employment effects of FDI are always smaller than the direct effects.
D.When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment, the immediate effect is always an increase in the employment.
E.A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there.
Q:
Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the 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.
Q:
The main benefits of inward FDI for a host country arise from:
A.the resource-transfer effect, the employment effect, and the balance-of-payments effect.
B.the labor-transfer effect, the technology effect, and the currency-exchange effect.
C.the cultural awareness effect, first-mover advantage effect, and economic development effect.
D.the foreign exchange reserves effect, knowledge flow effect, and the reverse resource transfer effect.
E.the employment effect, the labor-transfer effect, and the technology effect.
Q:
Which of the following is true regarding the pragmatic nationalist view of FDI?
A.One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
B.The pragmatic nationalist view states that FDI always has a positive effect on the balance of payments which arises from the outflow of a foreign subsidiary's earnings and from the import of inputs from abroad.
C.According to the pragmatic nationalist view, international production should be distributed among countries based on the theory of comparative advantage.
D.According to the pragmatic nationalist view, FDI should not be allowed to enter into a country because its costs always outweigh its benefits.
E.The pragmatic nationalist view of FDI accepts the Marxist theory, and suggests that FDI by MNEs is an instrument of imperialism.
Q:
The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:
A.pragmatic nationalism.
B.the radical view.
C.nationalism.
D.imitative theory.
E.eclectic paradigm.
Q:
According to which of the following, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs?
A.Eclectic paradigm theory
B.Free market view
C.Pragmatic nationalist view
D.Radical view
E.Internalization theory
Q:
Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's:
A.free trade agreements.
B.inward FDI.
C.sovereignty.
D.balance-of-payments position.
E.gold reserves.
Q:
The pragmatic nationalist view is that:
A.FDI benefits only the host country.
B.FDI does not make any positive contribution to the host economy.
C.every country should adopt the free market view.
D.FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development.
E.FDI has both benefits and costs.
Q:
Which of the following statements regarding the free market view is true?
A.According to the free market view, MNEs decrease the overall efficiency of the world economy.
B.The free market view argues that FDI is a benefit to both the source country and the host country.
C.According to the free market view, MNEs can never be instruments of economic development, only of economic domination.
D.According to the free market view, FDI is beneficial to the host country of an MNE but it is harmful for the home country of the MNE.
E.The free market view traces its roots to Marxist political and economic theory.
Q:
According to the free market view, how does FDI increase the efficiency of the world economy through MNEs?
A.The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.
B.MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale.
C.When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate.
D.A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country.
E.MNEs increase the efficiency of the world economy by increasing the flow of capital in the world market.
Q:
Which view argues that international production should be distributed among countries according to the theory of comparative advantage?
A.Conservative
B.Pragmatic nationalism
C.Free market
D.Radical
E.Keynesian economic
Q:
Which of the following is a reason for the decline in the popularity of the radical view of FDI?
A.The rise of communism in Eastern Europe
B.The generally steady economic growth of those countries that embraced the radical position
C.The growing belief in many countries that FDI leads to loss of jobs
D.The strong economic performance of those developing countries that embraced capitalism
E.The collapse of capitalism in the newly independent nations of Asia
Q:
According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be:
A.immediately nationalized.
B.made to pay higher taxes.
C.converted into publicly traded companies.
D.banned from obtaining finance from the financial institutions in the host country.
E.immediately privatized.
Q:
Radical writers argue that:
A.a multinational enterprise (MNE) is an instrument of economic development rather than economic domination.
B.MNEs are more beneficial to host countries than to their home countries.
C.important jobs in the foreign subsidiaries of MNEs go to host-country nationals rather than to citizens of the home country.
D.FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward.
E.MNEs exploit their home countries for the exclusive benefit of their host countries.
Q:
Which view of FDI traces its roots to Marxist political and economic theory?
A.Radical
B.Free market
C.Pragmatic nationalism
D.Comparative advantage
E.Pluralist
Q:
Dunning's theory helps explain:
A.how firms try to match each other's moves in different markets to try to hold each other in check.
B.the interdependence between firms in an oligopoly that leads to imitative behavior among the rivals.
C.why a greenfield investment in a new facility is better than an acquisition of or a merger with an existing local firm.
D.the problems associated with doing business in a different culture where the rules of the game may be very different.
E.how location factors affect the direction of FDI.
Q:
Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other, thus offering the location-specific advantage of:
A.a multipoint competition.
B.an oligopoly.
C.a first mover.
D.externalities.
E.free riders.
Q:
Which of the following is true about Dunning's arguments?
A.Dunning rejects the argument of internalization theory that it is difficult for a firm to license its own unique capabilities and know-how.
B.Dunning suggests that to exploit foreign resources, such as oil and other minerals, a firm must undertake licensing rather than FDI.
C.Dunning argues that it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes, since labor is not internationally mobile.
D.Dunning's theory and its extensions help explain the imitative FDI behavior by firms in oligopolistic industries.
E.Dunning argues that combining location-specific assets or resource endowments with the firm's own unique capabilities always requires licensing.
Q:
Location-specific advantages for a firm are those that arise from:
A.acquiring the home markets of foreign firms that threaten a firm's domestic market.
B.gaining a commanding position in one market and using them to subsidize competitive attacks in other markets.
C.preferring exporting over licensing in order to retain control over know-how, manufacturing, marketing, and strategy.
D.utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets.
E.franchising and licensing.
Q:
Which of the following concepts helps explain how location factors affect the direction of FDI?
A.The eclectic paradigm
B.The protectionism argument
C.The product life-cycle theory
D.The new trade theory
E.The infant industry argument
Q:
The difference between Internalization theory and imitative theory is that:
A.internalization theory does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.
B.imitative theory addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
C.most economists favor imitative theory as an explanation for FDI.
D.no important aspect of FDI is explained by imitative theory.
E.internalization theory addresses the issue of efficiency of FDI over exporting or licensing.
Q:
The idea behind multipoint competition is to ensure that:
A.a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere.
B.the competitors cooperate with each other to establish a cartel.
C.no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers.
D.growing technologies or business methods in new markets are transferred to established markets.
E.the firms in an industry prefer FDI over licensing or exporting.
Q:
Which of the following arises when two or more enterprises encounter each other in different regional markets, national markets, or industries?
A.Monopoly
B.Monopsony
C.Cartel
D.Multipoint competition
E.Oligopsony