Exam 7: Foreign Direct Investment

Rationalized production is a system of production in which each of a product's components is produced in the same location so that the cost of producing that product is lowest.

The eclectic theory states that firms undertake foreign direct investment only when the features of a particular location make the location appealing for investment.

One reason a home country may discourage foreign direct investment outflows is to protect its "sunset" industries.

How does the eclectic theory explain the concept of FDI? How can a host country offer incentives to attract FDI?

In industries having a limited number of small firms,foreign direct investment decisions frequently resemble a "follow the leader" scenario.

According to the international product life cycle theory,in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?

Tax breaks on profits earned abroad and political pressures are used by ________.

Discuss why a host country might promote or restrict foreign direct investment.

The ________ records exports and imports of goods and services,investment income,and gifts.

A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill.

A home country encourages outflows of foreign direct investment because it ________.

Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. -If Happyland is successful in attracting foreign direct investment,transactions involving those investments would appear in the country's ________ account.

Explain the various methods that host countries use to restrict and promote foreign direct investment.

Developed countries have historically been the major participants behind cross-border mergers and acquisitions.

The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be,a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.

Scenario: Happyland Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad. -Which of the following methods will Happyland use to discourage foreign direct investment inflows?

The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.

Scenario: Global Manufacturing Inc. (GMI) Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B. -In which of the following accounts would GMI's purchase of the company in Brazil appear?

In the maturing product stage of the international product life cycle theory,increased competition creates pressures to reduce production costs.

The ________ account within the United States' current account includes financial gains compensated to entities in other nations that is earned on assets they hold in the United States.