International Trade and Foreign Direct Investment

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Chapter 2
International Trade and Foreign Direct Investment

True/False Questions

1. The classical international trade theories are from the perspective of a country. True; Easy

2. Trade surplus refers to a situation where the value of imports is greater than the value of exports. False; Easy

3. The economic theory of mercantilism stated that a country’s wealth was determined by the amount of its gold and silver holdings. True; Easy

4. Trade deficit refers to a situation where the value of exports is greater than the value of imports. False; Easy

5. The modern international trade theories explain trade from a firm, rather than a country, perspective. True; Easy

6. The new nations of the 1500s promoted exports by imposing restrictions on imports. True; Easy

7. The British colonial empire sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India. True; Easy

8. Countries such as China still favor exports and discourage imports through a form of neo-mercantilism. True; Easy

9. Free trade only benefits select industries, at the expense of both consumers and other companies, within and outside of the industry. False; Easy

10. The product life cycle theory has been better able to explain current trade patterns where innovation and manufacturing occur around the world. False; Moderate

11. The Internet has lessened the ability of the countries to regulate or strong-arm companies into abiding by their rules and regulations. True; Easy

12. Global businesses can afford to ignore the political and legal climate in countries in which they currently operate. False; Easy

13. A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government. True; Easy

14. Most countries maintain a balance between anarchism and totalitarianism and the balance is often a reflection of the country’s history, culture, and religion. True; Easy

15. Totalitarianism occurs when an authoritarian leadership is motivated by a distinct ideology. True; Easy

16. Capitalism is an economic system in which the means of production are owned and controlled privately. True; Easy

17. Political stability is a key part of government efforts to attract foreign investment to their country. True; Easy

18. Foreign direct investment refers to the investment in a company’s stocks, bonds, or assets, but not for the purpose of controlling or directing the firm’s operations or management. False; Easy

19. Companies make portfolio investment by participating in a joint venture with a foreign company. False; Easy

20. The foreign direct investment made by a company is primarily a part of its long-term strategy. True; Easy

21. Governments want to be able to control and regulate the flow of FDI, so that local political and economic concerns are addressed. True; Easy

22. Purchasing goods and services or deciding to invest in a local market depends on a business’s needs and overall strategy. True; Easy

23. A company needs to sell in the local market in order to deem it a good option for direct investment. Easy; False

24. Companies involved in Brownfield foreign direct investment build new facilities right from scratch usually in an area where no previous facilities existed. False; Easy

25. Few governments still actively limit and control foreign investment. False; Moderate

Multiple Choice Questions

26. The _____ refers to the land and water trade routes that covered more than 4,000 miles and connected the Mediterranean with Asia. a. Silk Road
b. Salt Road
c. Amber Road
d. Grand Trunk Road
e. Siberian Route
a; Easy

27. The _____ states that a country’s wealth was determined by the amount of its gold and silver holdings. a. Leontief Paradox
b. absolute advantage...
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