Foreign Direct Investment (Fdi) Quiz Questions
Econ.
- 1.
1. China has received a great deal of FDI. Why?
- A.
Firms such as automakers can take advantage of low wages and also avoid tariffs if their production is finished in China.
- B.
The U.S. government has encouraged domestic firms to buy foreign firms.
- C.
Loans to purchase manufacturing facilities in other nations are subsidized by the U.S. government.
- D.
China has a system of business that is free from corruption and interference by the Chinese government.
Correct Answer
A. Firms such as automakers can take advantage of low wages and also avoid tariffs if their production is finished in China.Explanation
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.Rate this question:
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- 2.
2. Which of the following is an example of horizontal FDI?
- A.
Ford Motor Company acquires the British firm Jaguar.
- B.
Lenovo, a Chinese company, acquires IBM's personal computing business.
- C.
The Venezuelan government acquires the Venezuelan operations of BP Petroleum, a British firm.
- D.
General Motors Corporation builds a plant in China to supply Buicks to the Chinese market.
Correct Answer
A. Ford Motor Company acquires the British firm Jaguar.Explanation
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.Rate this question:
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- 3.
Which of the following is included in trade flows?
- A.
Sales or purchases of goods by residents of different countries
- B.
Sales of goods by domestic residents to foreign residents
- C.
Purchases of services by domestic residents from foreigners
- D.
Sales or purchases of goods by residents of different countries, sales of goods by domestic residents to foreign residents, and purchases of services by domestic residents from foreigners
- E.
All of the above
Correct Answer
E. All of the aboveExplanation
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.Rate this question:
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- 4.
Which statement is correct?
- A.
The bilateral trade balance is a good indicator of the inequality of imports and exports between the United States and China.
- B.
The bilateral trade balance vastly understates the gap in imports and exports between the United States and China.
- C.
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.
- D.
The bilateral trade balance shows that there is balanced trade between the United States and China.
- E.
None of the above.
Correct Answer
C. 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.Explanation
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.Rate this question:
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- 5.
“Value added” in the context of international trade refers to:
- A.
The difference between the value of the imported inputs and the value of the exported product.
- B.
The additional value a worker provides to a firm when she is hired.
- C.
The value added by being able to purchase goods in a competitive market.
- D.
The value added by import brokers when they mark up the price of the products.
Correct Answer
A. The difference between the value of the imported inputs and the value of the exported product.Explanation
"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.Rate this question:
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- 6.
Recent bilateral trade figures alarm politicians who worry about China's growing trade imbalance with the United States. What do the authors of your textbook say?
- A.
The real figures are even more shocking.
- B.
It is not as bad as the numbers appear due to the fact that China imports from its other trading partners up to 80 percent of the value of the export.
- C.
It depends on how you count imports and exports and on which currency is used.
- D.
Irresponsible governments, corruption, and greedy corporations are responsible for the widening gap.
Correct Answer
B. It is not as bad as the numbers appear due to the fact that China imports from its other trading partners up to 80 percent of the value of the export.Explanation
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.Rate this question:
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- 7.
If the trade-to-GDP ratio is 25% and the overall value of trade is $175 billion, then the GDP is ______.
- A.
$250 billion
- B.
$700 billion
- C.
$1 trillion
- D.
$0.5 trillion
- E.
None of the above.
Correct Answer
B. $700 billionExplanation
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.Rate this question:
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- 8.
Internal trade volume between what nations is the world's highest?
- A.
Canada, Mexico, and Japan
- B.
Japan, China, South Korea, and Thailand
- C.
Nations in the European Union
- D.
Middle Eastern countries
Correct Answer
C. Nations in the European UnionExplanation
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.Rate this question:
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- 9.
Which of the following statements explain(s) why Asian countries trade9) Which of the following statements explain(s) why Asian countries trade? (1) They have low wages. (2) In some Asian countries the workers are very productive. (3) They have an abundant supply of raw materials.
- A.
(1) only
- B.
(1) and (2) only
- C.
(2) only
- D.
(3) only
- E.
(2) and (3) only
Correct Answer
B. (1) and (2) onlyExplanation
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.Rate this question:
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- 10.
If a country's GDP is $10 trillion and its overall trade flows are $2 trillion (exports and imports), then:
- A.
Its trade-to-GDP ratio is 20%.
- B.
It is not a successful country.
- C.
Its GDP needs to increase.
- D.
Its trade-to-GDP ratio is too high.
- E.
Its trade-to-GDP ratio is 2%
Correct Answer
A. Its trade-to-GDP ratio is 20%.Explanation
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.Rate this question:
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- 11.
Measured in dollar volume, which nation had the highest total trade in 2005?
- A.
Hong Kong, China
- B.
Japan
- C.
Germany
- D.
The United States
Correct Answer
D. The United StatesExplanation
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.Rate this question:
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- 12.
Which of the following is an example of reverse-vertical FDI?
- A.
Ford Motor Company acquires the British firm Jaguar.
- B.
Lenovo, a Chinese company, acquires IBM's personal computing business.
- C.
Daimler-Benz, a German company, merges with Chrysler Corporation, an American company, to form the Daimler-Benz Corporation.
- D.
General Motors Corporation builds a plant in China to supply Buicks to the Chinese market.
Correct Answer
B. Lenovo, a Chinese company, acquires IBM's personal computing business.Explanation
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.Rate this question:
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- 13.
One factor mentioned as a reason for the “golden age of trade” was the invention of:
- A.
The cotton gin.
- B.
The wheel.
- C.
Improved methods of transporting goods.
- D.
The computer.
Correct Answer
C. Improved methods of transporting goods.Explanation
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.Rate this question:
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- 14.
Raising tariffs in a country has what immediate effect on its economy?
- A.
It increases the volume of trade.
- B.
It reduces the volume of imports.
- C.
It increases the volume of imports.
- D.
It promotes better trade relations with other countries.
Correct Answer
B. It reduces the volume of imports.Explanation
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.Rate this question:
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- 15.
An outcome of the Smoot-Hawley tariff enacted by the United States was:
- A.
A renewed effort to re-establish international trade and the flow of payments via new international organizations.
- B.
A focus on environmental and labor problems caused by trade.
- C.
A renewed emphasis on gold as a means of payment.
- D.
Increased flows of foreign aid to low-income nations.
Correct Answer
A. A renewed effort to re-establish international trade and the flow of payments via new international organizations.Explanation
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.Rate this question:
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- 16.
If the trade-to-GDP ratio is 38% and the GDP is $500 billion, then what is the overall value of trade?
- A.
$390 billion
- B.
Not enough information is provided to answer the question.
- C.
$190 billion
- D.
$100 billion
- E.
None of the above
Correct Answer
C. $190 billionExplanation
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.Rate this question:
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- 17.
Which of the following is a reason for horizontal FDI?
- A.
To avoid tariffs or other trade barriers
- B.
To have improved facilities and information for marketing products
- C.
To take advantage of inexpensive labor
- D.
To share expertise and avoid possible duplication of products
- E.
All of the above except C are reasons for horizontal FDI
Correct Answer
E. All of the above except C are reasons for horizontal FDIExplanation
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.Rate this question:
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- 18.
Which of the following statements refer to a vertical FDI?
- A.
An American company purchases a British soccer team.
- B.
Ford Motor company establishes a plant in Canada.
- C.
GM opens a plant in India.
- D.
BMW opens a plant in Bilbao, Spain.
- E.
None of the above.
Correct Answer
C. GM opens a plant in India.Explanation
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.Rate this question:
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- 19.
What is the best measure of a country's openness to international trade?
- A.
The ratio of its exports to its GDP
- B.
The ratio of its imports to its GDP
- C.
The ratio of its trade balance (exports minus imports) to its GDP
- D.
The ratio of its exports plus imports to its GDP
Correct Answer
D. The ratio of its exports plus imports to its GDPExplanation
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.Rate this question:
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- 20.
Trade flows include all of the following except:
- A.
Purchases of goods.
- B.
Purchases of services
- C.
Purchases of stocks and bonds.
- D.
Purchases of software.
- E.
All are included in trade flows
Correct Answer
C. Purchases of stocks and bonds.Explanation
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.Rate this question:
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Mar 22, 2023Quiz Edited by
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Feb 11, 2012Quiz Created by
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