IMS 3310 Final Exam Actual study set
with Questions and correct/verified
Answers
Foreign Portfolio Investment (FPI) - ANSW-investment in a portfolio of foreign securities such as stocks
and bonds
Sovereign Wealth Funds (SWF) - ANSW-a state-owned investment fund composed of financial assets
such as stocks, bonds, real estate, and other financial instruments
Management Control Right - ANSW-the right to appoint key managers and establish control mechanisms
Upstream Vertical FDI - ANSW-a type of vertical FDI in which a firm engages in an upstream stage of the
value chain in a host country
Downstream Vertical FDI - ANSW-a type of vertical FDI in which a firm engages in a downstream stage of
the value chain in a host country
FDI Flow - ANSW-the amount of FDI moving in a given period in a certain
FDI Inflow - ANSW-inward FDI moving into a country in a year
FDI Outflow - ANSW-outward FDI moving out of a country in a year
FDI Stock - ANSW-total accumulation of inward FDI in a country or outward FDI from a country across a
given period
Horizontal FDI - ANSW-a type of FDI in which a firm duplicates its home country-based activities at the
same value-chain stage in a host country
Vertical FDI - ANSW-a type of FDI in which a firm moves upstream or downstream at different value-
chain stages in a host country
OLI advantage - ANSW-a firm's quest for ownership (O) advantages, location (L) advantages, and
internalization (I) advantages via FDI
Ownership advantage - ANSW-a MNE's possession and leveraging of certain valuable, rare, hard-to-
imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI
Location advantage - ANSW-advantage enjoyed by firms operating in a certain location
Internalization advantage - ANSW-the replacement of cross-border markets (such as exporting and
importing) with one firm (the MNE) locating and operating in two or more countries
Licensing - ANSW-Firm A's agreement to give Firm B the rights to use A's proprietary technology (such as
a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B; this is typically done in
manufacturing industries
Market imperfection (Market failure) - ANSW-the imperfect rules governing international transactions
Dissemination risk - ANSW-risk associated with unauthorized diffusion of firm-specific know-how
, Agglomeration - ANSW-clustering of economic activities in certain locations
Knowledge spillovers - ANSW-knowledge diffused from one firm to others among closely located firms
Oligopoly - ANSW-industry dominated by a small number of players
Intrafirm trade - ANSW-international transactions between two subsidiaries in two countries controlled
by the same MNE
Radical view - ANSW-a political view that is hostile to FDI
Free market view - ANSW-a political view that suggests that FDI unrestricted by government intervention
is best
Pragmatic nationalism - ANSW-a political view that only approves FDI when benefits outweigh its costs
Technology spillover - ANSW-technology diffused from foreign firms to domestic firms
Demonstration effect (Contagion effect) - ANSW-the reaction of local firms to rise to the challenge
demonstrated by MNEs through learning and imitation
3 Primary Costs of FDI to Host Country - ANSW-1. loss of economic sovereignty
2. MNEs may drive some domestic firms out of business
3. Capital outflow
3 Main Benefits of FDI to Home Country - ANSW-1. repatriated earnings from profits from FDI
2. Increased exports of components and services to host countries
3. Learning via FDI from operations abroad
Tax avoidance - ANSW-efforts to minimize taxes
Tax haven - ANSW-jurisdiction that offers low taxes as a primary way to attract investment
Bargaining power - ANSW-ability to extract favorable outcome from negotiations due to one party's
strengths
Obsolescing bargain - ANSW-the deal struck by MNEs and host governments, which change their
requirements after the initial FDI entry
Expropriation - ANSW-government's confiscation of foreign assets
Sunk cost - ANSW-cost that a firm has to endure after making the initial investment
Investor-state dispute settlement (ISDS) - ANSW-procedures to resolve disputes between foreign
investors and host-country governments
Regional Economic Integration - ANSW-efforts to reduce trade and investment barriers within one region
Global Economic Integration - ANSW-efforts to reduce trade and investment barriers around the globe
General Agreement on Tariffs and Trade - ANSW-a multilateral agreement governing the international
trade of goods
with Questions and correct/verified
Answers
Foreign Portfolio Investment (FPI) - ANSW-investment in a portfolio of foreign securities such as stocks
and bonds
Sovereign Wealth Funds (SWF) - ANSW-a state-owned investment fund composed of financial assets
such as stocks, bonds, real estate, and other financial instruments
Management Control Right - ANSW-the right to appoint key managers and establish control mechanisms
Upstream Vertical FDI - ANSW-a type of vertical FDI in which a firm engages in an upstream stage of the
value chain in a host country
Downstream Vertical FDI - ANSW-a type of vertical FDI in which a firm engages in a downstream stage of
the value chain in a host country
FDI Flow - ANSW-the amount of FDI moving in a given period in a certain
FDI Inflow - ANSW-inward FDI moving into a country in a year
FDI Outflow - ANSW-outward FDI moving out of a country in a year
FDI Stock - ANSW-total accumulation of inward FDI in a country or outward FDI from a country across a
given period
Horizontal FDI - ANSW-a type of FDI in which a firm duplicates its home country-based activities at the
same value-chain stage in a host country
Vertical FDI - ANSW-a type of FDI in which a firm moves upstream or downstream at different value-
chain stages in a host country
OLI advantage - ANSW-a firm's quest for ownership (O) advantages, location (L) advantages, and
internalization (I) advantages via FDI
Ownership advantage - ANSW-a MNE's possession and leveraging of certain valuable, rare, hard-to-
imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI
Location advantage - ANSW-advantage enjoyed by firms operating in a certain location
Internalization advantage - ANSW-the replacement of cross-border markets (such as exporting and
importing) with one firm (the MNE) locating and operating in two or more countries
Licensing - ANSW-Firm A's agreement to give Firm B the rights to use A's proprietary technology (such as
a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B; this is typically done in
manufacturing industries
Market imperfection (Market failure) - ANSW-the imperfect rules governing international transactions
Dissemination risk - ANSW-risk associated with unauthorized diffusion of firm-specific know-how
, Agglomeration - ANSW-clustering of economic activities in certain locations
Knowledge spillovers - ANSW-knowledge diffused from one firm to others among closely located firms
Oligopoly - ANSW-industry dominated by a small number of players
Intrafirm trade - ANSW-international transactions between two subsidiaries in two countries controlled
by the same MNE
Radical view - ANSW-a political view that is hostile to FDI
Free market view - ANSW-a political view that suggests that FDI unrestricted by government intervention
is best
Pragmatic nationalism - ANSW-a political view that only approves FDI when benefits outweigh its costs
Technology spillover - ANSW-technology diffused from foreign firms to domestic firms
Demonstration effect (Contagion effect) - ANSW-the reaction of local firms to rise to the challenge
demonstrated by MNEs through learning and imitation
3 Primary Costs of FDI to Host Country - ANSW-1. loss of economic sovereignty
2. MNEs may drive some domestic firms out of business
3. Capital outflow
3 Main Benefits of FDI to Home Country - ANSW-1. repatriated earnings from profits from FDI
2. Increased exports of components and services to host countries
3. Learning via FDI from operations abroad
Tax avoidance - ANSW-efforts to minimize taxes
Tax haven - ANSW-jurisdiction that offers low taxes as a primary way to attract investment
Bargaining power - ANSW-ability to extract favorable outcome from negotiations due to one party's
strengths
Obsolescing bargain - ANSW-the deal struck by MNEs and host governments, which change their
requirements after the initial FDI entry
Expropriation - ANSW-government's confiscation of foreign assets
Sunk cost - ANSW-cost that a firm has to endure after making the initial investment
Investor-state dispute settlement (ISDS) - ANSW-procedures to resolve disputes between foreign
investors and host-country governments
Regional Economic Integration - ANSW-efforts to reduce trade and investment barriers within one region
Global Economic Integration - ANSW-efforts to reduce trade and investment barriers around the globe
General Agreement on Tariffs and Trade - ANSW-a multilateral agreement governing the international
trade of goods
