International Investment: Risks, Returns, and Strategies

Question 1

Discuss the ethical responsibilities of multinational corporations when making international investments, focusing on the potential social, environmental, and economic impacts of their operations.

Accepted Answer

Multinational corporations should balance profit motives with positive contributions to host countries.

Answer

Multinational corporations have no ethical responsibility beyond maximizing profits for their shareholders.

Answer

Multinational corporations should prioritize social and environmental responsibility over economic considerations.

Answer

Multinational corporations should invest solely in countries with lax environmental regulations.

Question 2

Which of the following is NOT a potential advantage of foreign direct investment (FDI)?

Accepted Answer

Reduction in domestic investment

Answer

Transfer of technology

Answer

Job creation

Answer

Increased economic growth

Question 3

A multinational company (MNC) that establishes a new factory in a foreign country is undertaking a:

Accepted Answer

Greenfield investment

Answer

Joint venture

Answer

Cross-border merger

Answer

Portfolio investment

Question 4

The purchase of bonds issued by a foreign government by a domestic investor is an example of:

Accepted Answer

Debt investment

Answer

Real estate investment

Answer

Foreign direct investment

Answer

Equity investment

Question 5

A multinational company that purchases a majority stake in a foreign company is engaged in:

Accepted Answer

Merger and acquisition (M&A)

Answer

Greenfield investment

Answer

Strategic alliance

Answer

Joint venture

Question 6

The World Bank is an international organization that promotes international investment through:

Accepted Answer

Providing loans and grants to developing countries

Answer

Setting exchange rates

Answer

Enforcing trade agreements

Question 7

Which of the following accurately describes foreign direct investment (FDI)?

Accepted Answer

Investing in real assets and establishing a physical presence in a foreign country

Answer

Lending money to foreign governments

Answer

Purchasing ownership in foreign companies without establishing a physical presence

Question 8

When making international investment decisions, which type of risk is associated with fluctuations in the value of foreign currencies?

Accepted Answer

Foreign exchange risk

Answer

Operational risk

Answer

Economic risk

Answer

Political risk

Question 9

Portfolio investment refers to:

Accepted Answer

Purchasing ownership in foreign companies through stocks or bonds

Answer

Establishing a physical presence in a foreign country

Answer

Lending money to foreign governments

Question 10

The primary goal of international investment is to:

Accepted Answer

Maximize returns

Answer

Promote economic growth

Answer

Minimize risks

Answer

Support social development

Question 11

Which of the following is a benefit of foreign direct investment for host countries?

Accepted Answer

Job creation and technology transfer

Answer

Stabilizing exchange rates

Answer

Lowering inflation rates

Answer

Reducing government debt

Question 12

What is a primary challenge associated with portfolio investment?

Accepted Answer

Lack of control over foreign assets

Answer

Limited diversification opportunities

Answer

High entry and exit costs

Answer

Currency exchange fluctuations

Question 13

Which international organization provides guidelines for responsible investment?

Accepted Answer

United Nations Principles for Responsible Investment (UNPRI)

Answer

International Monetary Fund (IMF)

Answer

World Bank

Question 14

The process of thoroughly researching and evaluating potential risks and opportunities in international investment is known as:

Accepted Answer

Due diligence

Answer

Investment strategy development

Answer

Portfolio management

Answer

Risk assessment

Question 15

Which of the following is a critical factor considered in foreign direct investment (FDI) decision-making?

Accepted Answer

Political and economic stability of the host country

Answer

Abundant natural resources in the host country

Answer

Cultural similarity between the investing and host countries

Question 16

What is the primary objective of portfolio investment?

Accepted Answer

To generate income through dividends or interest payments

Answer

To exert control over foreign operations

Answer

To facilitate technology transfer

Question 17

Which type of foreign investment involves establishing a new subsidiary or facility in a foreign country?

Accepted Answer

Greenfield investment

Answer

Joint venture

Answer

Brownfield investment

Answer

Acquisition

Question 18

Which strategy is commonly used to mitigate the currency exchange rate risk associated with international investment?

Accepted Answer

Currency hedging

Answer

Local sourcing

Answer

Investment diversification

Answer

Political lobbying

Question 19

Explain the role of international investment in promoting economic development.

Accepted Answer

Facilitates capital inflows, creates employment opportunities, and enhances technology transfer

Answer

Exacerbates income inequality

Answer

Depletes natural resources

Question 20

Identify the primary factor influencing the decision to invest in a foreign market.

Accepted Answer

Return on investment potential and risk assessment

Answer

Political ideology of the host country

Answer

Personal preferences of the investor

Answer

Cultural affinity with the host country

Question 21

Which of the following is a defining characteristic of multinational corporations (MNCs)?

Accepted Answer

They operate and own assets in multiple countries

Answer

They are primarily focused on domestic markets

Answer

They have limited foreign ownership

Question 22

What is the primary function of the World Bank's International Development Association (IDA)?

Accepted Answer

To provide financial assistance to low-income countries through low-interest loans and grants

Answer

To regulate international trade and investment

Answer

To promote foreign direct investment in developed countries

Question 23

Which of the following is a primary factor influencing the decisions of foreign direct investment (FDI)?

Accepted Answer

Political and economic stability of the host country

Answer

Personal relationships between investors

Answer

Geographic proximity to home country

Question 24

In comparison to foreign direct investment, what is a key advantage of portfolio investment?

Accepted Answer

Lower level of financial commitment and risk

Answer

Access to exclusive foreign markets

Answer

Higher level of managerial control

Answer

Greater potential for long-term capital gains

Question 25

What is the primary purpose of a double taxation treaty?

Accepted Answer

To prevent the same income from being taxed in two different countries

Answer

To promote foreign investment by providing tax incentives

Answer

To reduce trade barriers among participating countries

Question 26

What term refers to the movement of funds across borders for investment purposes?

Accepted Answer

Capital flows

Answer

Foreign aid

Answer

Currency exchange

Answer

Balance of payments

Question 27

Which organization is responsible for establishing international standards for financial reporting?

Accepted Answer

International Accounting Standards Board (IASB)

Answer

International Monetary Fund (IMF)

Answer

United Nations Conference on Trade and Development (UNCTAD)

Answer

World Trade Organization (WTO)

Question 28

Which type of international investment involves a long-term commitment and substantial control over the operations of a foreign entity?

Accepted Answer

Foreign direct investment

Answer

Joint venture

Answer

Cross-border lending

Answer

Portfolio investment

Question 29

When evaluating the potential return of an international investment, which factor is crucial to consider?

Accepted Answer

Exchange rate fluctuations

Answer

Political stability of the host country

Answer

Inflation rates in different countries

Answer

Cultural and social differences

Question 30

A company decides to build a new manufacturing plant in a foreign country. This is an example of:

Accepted Answer

Foreign Direct Investment (FDI)

Answer

Foreign Exchange Trading

Answer

Portfolio Investment

Question 31

Which of the following is NOT a major risk associated with foreign direct investment?

Accepted Answer

Low interest rates in the host country

Answer

Political instability

Answer

Cultural differences

Answer

Currency fluctuations

Question 32

A company investing in a foreign country's stock market is engaging in:

Accepted Answer

Portfolio Investment

Answer

Greenfield Investment

Answer

Mergers and Acquisitions

Answer

Foreign Direct Investment (FDI)

Question 33

Which of the following factors would likely attract foreign investment to a country?

Accepted Answer

A stable political environment

Answer

Restrictive trade policies

Answer

Weak legal infrastructure

Answer

High inflation rates

Question 34

A company using a hedging strategy to minimize the risk of currency fluctuations is attempting to mitigate:

Accepted Answer

Exchange rate risk

Answer

Political risk

Answer

Operational risk

Answer

Regulatory risk

Question 35

The 'O' in the acronym 'OPEC' stands for:

Accepted Answer

Organization

Answer

Output

Answer

Opportunity

Answer

Oil

Question 36

A company investing in a foreign country's infrastructure, such as roads or airports, is likely involved in:

Accepted Answer

Infrastructure development

Answer

Mergers and Acquisitions

Answer

Portfolio investment

Answer

Greenfield investment

Question 37

Which of the following is NOT a benefit of international investment for a host country?

Accepted Answer

Increased unemployment

Answer

Technological transfer

Answer

Economic growth

Answer

Improved infrastructure

Question 38

A company investing in a foreign country through the acquisition of an existing company is engaging in:

Accepted Answer

Mergers and Acquisitions

Answer

Joint Venture

Answer

Portfolio Investment

Answer

Greenfield Investment

Question 39

A company considering international investment should analyze the potential returns in relation to:

Accepted Answer

Risk

Answer

Taxation

Answer

Competition

Answer

Government regulation