Foreign Direct Investment (Fdi) Quiz Questions

China has received a great deal of FDI because firms such as automakers can take advantage of low wages and also avoid tariffs if their production is finished in China. This means that companies can save on labor costs and reduce import taxes, making China an attractive destination for foreign investment.

When a country raises tariffs, it imposes higher taxes on imported goods, making them more expensive for domestic consumers. This increase in cost discourages the demand for imported goods, leading to a decrease in the volume of imports. As a result, the country becomes more self-reliant and reduces its dependence on foreign products. This action is often taken to protect domestic industries and promote local manufacturing and production.

The Smoot-Hawley tariff, enacted by the United States, was a protectionist measure that imposed high tariffs on imported goods. This led to retaliation from other countries, resulting in a decline in international trade and the flow of payments. In response to this negative outcome, there was a renewed effort to re-establish international trade and payment flows through the creation of new international organizations. These organizations aimed to promote cooperation and reduce trade barriers, fostering economic growth and stability.

The overall value of trade can be calculated by multiplying the trade-to-GDP ratio by the GDP. In this case, the trade-to-GDP ratio is 38% (0.38) and the GDP is $500 billion. Therefore, the overall value of trade is 0.38 * $500 billion = $190 billion.

During the "golden age of trade," the invention of improved methods of transporting goods played a crucial role. This advancement allowed for faster and more efficient movement of goods, enabling trade to flourish. With better transportation methods such as canals, roads, and later on, railroads, goods could be transported over longer distances and at a quicker pace. This led to increased trade opportunities, economic growth, and the expansion of markets. The cotton gin, the wheel, and the computer, although significant inventions in their own right, did not directly contribute to the "golden age of trade" in the same way that improved methods of transporting goods did.

"Value added" in the context of international trade refers to the difference between the value of the imported inputs and the value of the exported product. This means that it represents the additional value created during the production process, taking into account the value of the inputs used. It indicates the extent to which a country or firm has contributed to the final value of a product through its production activities. By calculating the value added, it provides a measure of the economic contribution made by a country or firm in the global trade.

The trade-to-GDP ratio is calculated by dividing the total trade flows (exports and imports) by the GDP and multiplying by 100. In this case, the total trade flows are $2 trillion and the GDP is $10 trillion. Dividing $2 trillion by $10 trillion and multiplying by 100 gives a trade-to-GDP ratio of 20%. This means that the country's trade flows account for 20% of its GDP.

The correct answer is nations in the European Union. The European Union consists of 27 member countries, making it the largest trading bloc in the world. The internal trade volume between these nations is the highest due to the free movement of goods, services, and capital within the EU. This trade volume is driven by factors such as proximity, common regulations, and a shared currency, which promote ease of trade among member countries.

In 2005, The United States had the highest total trade in dollar volume compared to Hong Kong, China, Japan, and Germany. This suggests that the United States had the highest value of imports and exports combined, indicating a strong and active trading economy during that year.

The authors of the textbook argue that the trade imbalance between China and the United States is not as severe as it may seem because China imports a significant portion of its exports from other trading partners, up to 80 percent. This suggests that the trade deficit is partially offset by China's imports, mitigating the negative impact on the Chinese economy.

If the trade-to-GDP ratio is 25%, it means that the value of trade is 25% of the GDP. Therefore, if the overall value of trade is $175 billion, we can calculate the GDP by dividing the trade value by the trade-to-GDP ratio. $175 billion divided by 0.25 equals $700 billion, which is the GDP.

The correct answer is that the bilateral trade balance may overstate the gap in imports and exports between the United States and China because some of the manufacturing inputs used do not originate in China. This is because the bilateral trade balance only considers the value of the final goods and services traded between the two countries, without taking into account the value of intermediate goods and components that are imported by China for further processing and re-export. Therefore, the trade balance may not accurately reflect the true level of economic interdependence between the two countries.

Trade flows refer to the movement of goods and services between countries. This includes the purchases of goods and services, as well as software. However, purchases of stocks and bonds are not considered trade flows because they represent financial investments rather than the exchange of tangible goods or services.

Trade flows refer to the movement of goods and services between different countries. The correct answer, "All of the above," includes all the options mentioned in the question. It encompasses the sales or purchases of goods by residents of different countries, the sales of goods by domestic residents to foreign residents, and the purchases of services by domestic residents from foreigners. Therefore, all these activities are considered as part of trade flows.

Ford Motor Company acquiring the British firm Jaguar is an example of horizontal FDI because both companies operate in the same industry, which is the automotive industry. Horizontal FDI refers to a situation where a company expands its operations or acquires another company in the same industry in a foreign country. In this case, Ford Motor Company is expanding its presence in the automotive industry by acquiring Jaguar, which operates in the same industry.

Horizontal FDI refers to the investment made by a company in a foreign country that is engaged in the same industry as the company's domestic operations. The given answer states that all of the options except for C are reasons for horizontal FDI. This means that avoiding tariffs or trade barriers, having improved facilities and information for marketing products, and sharing expertise to avoid duplication of products are all valid reasons for a company to engage in horizontal FDI. Inexpensive labor, however, is not specifically mentioned as a reason for horizontal FDI in this answer.

The correct answer is GM opens a plant in India. Vertical FDI refers to when a company invests in a different country but in a different stage of the production process. In this case, GM opening a plant in India indicates that they are investing in a different country to carry out a specific stage of their production process, making it a vertical FDI. The other options do not involve different stages of production or do not involve a different country, so they do not refer to a vertical FDI.

Asian countries trade because they have low wages and productive workers. Low wages make their products more competitive in the global market, attracting foreign buyers. Additionally, the high productivity of workers in some Asian countries allows them to produce goods efficiently and at a lower cost, further enhancing their competitiveness in international trade. The abundant supply of raw materials, mentioned in option (3), is not mentioned as a reason for Asian countries to trade in the given statements.

Lenovo, a Chinese company, acquiring IBM's personal computing business is an example of reverse-vertical FDI. Reverse-vertical FDI occurs when a firm from a developing country acquires a firm in a developed country. In this case, Lenovo, a Chinese company, is acquiring IBM's personal computing business, which is based in the United States. This represents a reverse flow of investment from a developing country to a developed country.

The best measure of a country's openness to international trade is the ratio of its exports plus imports to its GDP. This ratio takes into account both the value of a country's exports and imports, giving a comprehensive measure of the country's engagement in international trade. By considering both exports and imports, this ratio provides a more accurate representation of a country's level of openness to global markets.