Q.1 What does FDI stand for in International Economics?
Foreign Development Investment
Foreign Direct Investment
Foreign Domestic Investment
Foreign Deposit Investment
Explanation - FDI stands for Foreign Direct Investment, where a company invests directly in facilities to produce or market a product in another country.
Correct answer is: Foreign Direct Investment
Q.2 Which of the following is an example of FDI?
Buying foreign shares on a stock exchange
A multinational company building a factory abroad
Sending remittances to another country
Purchasing foreign government bonds
Explanation - FDI involves direct control in foreign assets, such as building factories, not just portfolio investments.
Correct answer is: A multinational company building a factory abroad
Q.3 Which institution tracks global FDI inflows and outflows?
World Bank
International Monetary Fund (IMF)
World Trade Organization (WTO)
United Nations Conference on Trade and Development (UNCTAD)
Explanation - UNCTAD publishes the World Investment Report which details global FDI trends.
Correct answer is: United Nations Conference on Trade and Development (UNCTAD)
Q.4 Horizontal FDI occurs when a firm:
Replicates production in multiple countries
Invests in a foreign supply chain
Exports goods to foreign countries
Imports intermediate goods
Explanation - Horizontal FDI happens when firms duplicate the same production activities abroad as they do domestically.
Correct answer is: Replicates production in multiple countries
Q.5 Which of the following best defines a Multinational Corporation (MNC)?
A company with offices only in its home country
A company that exports goods
A company that operates in multiple countries
A company that invests only in domestic markets
Explanation - MNCs are firms that control assets and operations in more than one country.
Correct answer is: A company that operates in multiple countries
Q.6 Greenfield investment refers to:
Merging with an existing foreign company
Acquiring an existing foreign firm
Building new operational facilities abroad
Investing in agricultural lands overseas
Explanation - Greenfield investments involve establishing new production facilities in a foreign country.
Correct answer is: Building new operational facilities abroad
Q.7 Brownfield investment typically involves:
Establishing a new plant abroad
Merging with a domestic firm
Acquiring or leasing existing facilities abroad
Investing in green technologies
Explanation - Brownfield investment means using existing foreign facilities rather than starting new ones.
Correct answer is: Acquiring or leasing existing facilities abroad
Q.8 Which is NOT a potential benefit of FDI to the host country?
Technology transfer
Job creation
Improved infrastructure
Increased cultural isolation
Explanation - FDI usually promotes integration and development, not isolation.
Correct answer is: Increased cultural isolation
Q.9 Which country is the largest recipient of FDI globally in recent years?
United States
India
China
Brazil
Explanation - The United States has consistently ranked as the top FDI recipient due to its large market and stable economy.
Correct answer is: United States
Q.10 Which of the following is an example of vertical FDI?
A car manufacturer building another car plant abroad
A smartphone company buying a foreign microchip factory
A food chain opening restaurants abroad
An airline expanding foreign routes
Explanation - Vertical FDI integrates different stages of production across countries, like acquiring suppliers.
Correct answer is: A smartphone company buying a foreign microchip factory
Q.11 Which theory suggests firms engage in FDI to exploit firm-specific advantages internationally?
Comparative Advantage Theory
OLI Paradigm (Eclectic Theory)
Absolute Advantage Theory
Mercantilism
Explanation - The OLI Paradigm explains FDI through Ownership, Location, and Internalization advantages.
Correct answer is: OLI Paradigm (Eclectic Theory)
Q.12 Which is a drawback of FDI for the host country?
Access to advanced technology
Loss of economic sovereignty
Increased employment
Improved infrastructure
Explanation - FDI may give foreign companies significant influence over domestic economic policies.
Correct answer is: Loss of economic sovereignty
Q.13 When an MNC shifts profits to low-tax countries, it is engaging in:
Trade liberalization
Profit repatriation
Tax avoidance
Currency hedging
Explanation - MNCs sometimes engage in profit shifting to reduce tax liabilities.
Correct answer is: Tax avoidance
Q.14 Portfolio investment differs from FDI because:
Portfolio investment is long-term
Portfolio investment involves control of assets
Portfolio investment involves only financial assets without control
Portfolio investment requires physical presence abroad
Explanation - FDI implies management control, while portfolio investment is passive.
Correct answer is: Portfolio investment involves only financial assets without control
Q.15 Which sector receives the largest share of FDI globally?
Agriculture
Manufacturing
Services
Mining
Explanation - The services sector, including finance, IT, and business services, attracts the majority of global FDI.
Correct answer is: Services
Q.16 Which organization promotes FDI by providing guarantees against non-commercial risks?
WTO
MIGA
OECD
IMF
Explanation - The Multilateral Investment Guarantee Agency (MIGA), part of the World Bank Group, promotes FDI by mitigating risks like expropriation.
Correct answer is: MIGA
Q.17 An example of backward vertical FDI is:
A retailer investing in suppliers abroad
A car manufacturer buying a dealership abroad
A hotel chain opening hotels abroad
A bank opening a branch overseas
Explanation - Backward vertical FDI occurs when a firm invests in an earlier stage of its supply chain in another country.
Correct answer is: A retailer investing in suppliers abroad
Q.18 Which is a major motivation for FDI?
Reducing domestic employment
Access to new markets
Increasing trade barriers
Currency devaluation
Explanation - Firms pursue FDI to expand market reach and tap into foreign consumer bases.
Correct answer is: Access to new markets
Q.19 The repatriation of profits means:
Sending profits earned abroad back to the home country
Investing in foreign infrastructure
Keeping profits within the host country
Paying host country taxes
Explanation - Repatriation is the transfer of profits from foreign subsidiaries to the parent company's country.
Correct answer is: Sending profits earned abroad back to the home country
Q.20 Which of these best describes a 'host country' in FDI?
The country investing abroad
The country receiving foreign investment
The country lending capital to firms
The country exporting raw materials
Explanation - The host country is where the foreign investment is received and utilized.
Correct answer is: The country receiving foreign investment
Q.21 Which term refers to the risks of sudden government policy changes affecting FDI?
Operational risk
Sovereign risk
Political risk
Market risk
Explanation - Political risk refers to changes in government actions or instability that affect FDI.
Correct answer is: Political risk
Q.22 Which advantage of MNCs is often criticized as unfair to host countries?
Economies of scale
Transfer pricing
Technology transfer
Employment creation
Explanation - MNCs sometimes manipulate transfer prices between subsidiaries to lower tax liabilities.
Correct answer is: Transfer pricing
Q.23 FDI inflows are recorded in which part of the Balance of Payments?
Current account
Financial account
Capital account
Trade account
Explanation - FDI inflows are part of the financial account of the Balance of Payments, reflecting cross-border investments.
Correct answer is: Financial account
Q.24 Which type of FDI involves investment in unrelated industries abroad?
Horizontal FDI
Conglomerate FDI
Vertical FDI
Greenfield FDI
Explanation - Conglomerate FDI refers to investments in sectors different from the firm's original industry.
Correct answer is: Conglomerate FDI
Q.25 MNCs often benefit from economies of scale because:
They operate only in domestic markets
They restrict technology transfer
They produce on a global scale reducing average costs
They avoid competition abroad
Explanation - By producing across countries, MNCs reduce costs and gain efficiency through large-scale operations.
Correct answer is: They produce on a global scale reducing average costs