CA Foundation Economics – International Capital Movements Multiple Choice Questions

International Capital Movements Introduction

Question 1. What are international capital movements?

1. Movements of goods and services between countries
2. Movements of people between countries for employment purposes
3. Movements of financial assets and liabilities between countries
4. Movements of foreign aid and grants between countries

Answer: 3. Movements of financial assets and liabilities between countries

Explanation:

International capital movements refer to the flow of financial assets (e.g., stocks, bonds, currencies) and liabilities (e.g., loans, debts) between countries.

Question 2. Which of the following is an example of a capital inflow?

1. A country exporting goods to another country
2. A country receiving foreign direct investments (FDI) from abroad
3. A country borrowing money from an international organization
4. A country granting foreign aid to another country

Answer: 2. A country receiving foreign direct investments (FDI) from abroad

Explanation:

A capital inflow occurs when a country receives foreign funds, such as foreign direct investments (FDI), from other countries.

Question 3. What is the primary motivation behind international capital movements?

1. To promote international trade and exchange of goods
2. To facilitate foreign aid and humanitarian assistance
3. To earn profits and achieve higher returns on investments
4. To strengthen diplomatic relations between countries

Answer: 3. To earn profits and achieve higher returns on investments

Explanation:

The primary motivation behind international capital movements is to seek opportunities for higher returns on investments and to earn profits in foreign markets. ‘

Question 4. How do capital movements impact exchange rates?

1. Capital movements have no impact on exchange rates
2. Capital inflows lead to currency appreciation, and capital outflows lead to currency  depreciation
3. Capital inflows lead to currency depreciation, and capital outflows lead to currency  appreciation
4. Capital movements cause exchange rates to fluctuate randomly

Answer: 2. Capital inflows lead to currency appreciation, and capital outflows lead to currency depreciation

Explanation:

Capital inflows increase the demand for the domestic currency, leading to currency appreciation. Conversely, capital outflows increase the supply of the domestic currency, leading to currency depreciation.

Question 5. What is the role of capital controls in managing international capital movements?

1. Capital controls encourage unrestricted capital movements between countries
2. Capital controls limit the flow of financial assets between countries
3. Capital controls only apply to foreign direct investments (FDI) and not to portfolio  investments
4. Capital controls are only implemented during financial crises

Answer: 2. Capital controls limit the flow of financial assets between countries

Explanation:

Capital controls are measures implemented by governments to limit the flow of financial assets (such as investments and loans) betv/een countries, especially during times of economic instability or to regulate foreign exchange rates.

Question 6. What are international capital movements?

1. The movement of goods and services across borders
2. The flow of money and financial assets between countries
3. The exchange of currencies in the foreign exchange market
4. The movement of labor across borders

Answer: 2. The flow of money and financial assets between countries

Explanation:

International capital movements refer to the movement of money, financial assets, and investments between countries, including foreign direct investments, portfolio investments, and loans.

Question 7. Which of the following is an example of foreign direct investment (FDI)?

1. A foreign company purchasing goods from a domestic company
2. A domestic investor buying shares of a foreign company’s stock
3. A domestic company setting up a subsidiary in a foreign country
4. A foreign country imposing tariffs on imported goods

Answer: 3. A domestic company setting up a subsidiary in a foreign country

Explanation:

Foreign direct investment (FDI) occurs when a domestic company establishes a subsidiary and acquires significant ownership in a foreign company.

Question 8. What is portfolio investment in the context of international capital movements

1. Investment in Physical assets like real estate in foreign countries
2. Investment in a diversified portfolio of stocks and bonds in foreign markets
3. Investment in infrastructure projects in foreign countries
4. Investment in foreign companies’ manufacturing plants

Answer: 1. Investment in a diversified portfolio of stocks and bonds in foreign markets

Explanation:

Portfolio investment involves investing in a diverse set of financial assets such as stocks and bonds in foreign markets, often through mutual funds or exchange-traded funds (ETFs).

Question 9. How do international capital movements impact domestic economies?

1. They have no impact on domestic economies
2. They lead to higher inflation rates in domestic economies
3. They can contribute to economic growth and development
4. They lead to a decrease in foreign exchange reserves

Answer: 3. They can contribute to economic growth and development Explanation:

International capital movements can contribute positively to domestic economies by attracting foreign investments, promoting economic growth, and financing infrastructure and development projects.

Question 10. What is capital flight?

1. The movement of foreign capital into a domestic economy
2. The movement of domestic capital into a foreign economy
3. The rapid increase in foreign direct investments
4. The rapid increase in exports of a country

Answer: 2. The movement of domestic capital into a foreign economy

Explanation:

Capital flight refers to the movement of domestic capita! cut of a country into foreign markets, often driven by economic instability or concerns about the domestic economy’s prospects.

Please note that the above f.ICQs are provided for illustrative purposes and may not represent actual questions from any specific exam. For accurate and relevant MCQs with their solutions, it’s essential to refer to the material provided by your instructor or educational resources.

Question 11. International capital movements refer to the

1. The flow of goods and services between countries
2. Transfer of technology and knowledge across borders
3. Movement of financial assets and investments between countries
4. Exchange of currencies in the foreign exchange market

Answer: 3. Movement of financial assets and investments between countries

Question 12. Foreign Direct Investment (FDI) involves

1. Short-term speculative investments in financial markets
2. Acquiring a significant ownership stake in a foreign company
3. Exporting goods and services to foreign markets
4. Purchasing foreign currency for investment purposes

Answer: 2. Acquiring a significant ownership stake in a foreign company

Question 13. Portfolio investment includes

1. Long-term investments in real estate and infrastructure projects
2. Investments in a variety of financial assets like stocks and bonds in foreign markets
3. Direct investments in foreign businesses to control their operations
4. Currency trading for speculative purposes

Answer: 2. Investments in a variety of financial assets like stocks and bonds in foreign markets

Question 14. Capital flight refers to

1. The movement of financial capital from one country to another for investment purposes
2. The sudden influx of foreign investment into a country’s stock market
3. The mass migration of skilled labor to other countries for better opportunities
4. The rapid depreciation of a country’s currency in the foreign exchange market

Answer: 1. The movement of financial capital from one country to another for investment purposes

Question 15. The International Monetary Fund (IMF) plays a role in

1. Regulating international trade and setting tariff rates
2. Facilitating foreign direct investment between countries
3. Providing financial assistance to countries facing balance of payments crises
4. Setting interest rates in the global financial markets

Answer: 3. Providing financial assistance to countries facing balance of payments crises

Types Of Foreign Capital

Question 1. What is Foreign Direct Investment (FDI)?

1. Investment in foreign financial markets by domestic investors
2. Investment in domestic financial markets by foreign investors
3. Investment in a foreign company to gain significant ownership and control
4. Investment in foreign currencies for speculative purposes

Answer: 3. Investment in a foreign company to gain significant ownership and control

Explanation:

Foreign Direct Investment (FDI) involves investing in a foreign company to acquire a substantial ownership stake, giving the investor control over the company’s operations and management.

Question 2. What is Portfolio Investment?

1. Investment in a foreign company to gain significant ownership and control
2. Investment in foreign financial markets by domestic investors
3. Investment in domestic financial markets by foreign investors
4. Investment in foreign currencies for speculative purposes

Answer: 2. Investment in foreign financial markets by domestic investors

Explanation:

Portfolio Investment involves investing in financial assets such as stocks and bonds in foreign markets, often through mutual funds or exchange-traded funds (ETFs).

Question 3. What is Foreign Institutional Investment (Fll)?

1. Investment by domestic institutions in foreign companies
2. Investment by foreign institutions in domestic companies
3. Investment in a foreign company to gain significant ownership and control
4. Investment in foreign currencies for speculative purposes

Answer: 1. Investment by foreign institutions in domestic companies

Explanation:

Foreign Institutional Investment (Fll) refers to investments made by foreign institutions (such as mutual funds, pension funds, or hedge funds) in the domestic capital markets.

Question 4. What is Foreign Portfolio Investment (FPI)?

1. Investment in foreign financial markets by domestic investors
2. Investment by domestic institutions in foreign companies
3. Investment in a foreign company to gain significant ownership and control
4. Investment in foreign currencies for speculative purposes

Answer: 1.  Investment in foreign financial markets by domestic investors

Explanation:

Foreign Portfolio Investment (FPI) involves domestic investors investing in foreign financial assets, such as stocks and bonds, to diversify their investment portfolio. . .

Question 5. What is Foreign Aid? 

1. Investment in foreign financial markets by domestic investors
2. Investment by foreign institutions in domestic companies
3. Financial assistance provided by one country to another for development projects
4. Investment in foreign currencies for speculative purposes

Answer: 3. Financial assistance provided by one country to another for development projects

Explanation:

Foreign Aid refers to financial assistance provided by one country (or international organizations) to another country for developmental projects, infrastructure, and humanitarian purposes.

Question 6. What is Foreign Direct Investment (FDI)?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Investment in physical assets like real estate in foreign countries
3. Investment in short-term money market instruments in foreign markets
4. Investment in a foreign company’s manufacturing plants and operations

Answer: 4. Investment in a foreign company’s manufacturing plants and operations

Explanation:

Foreign Direct Investment (FDI) involves the investment by a company in a foreign country to establish or acquire significant ownership in businesses or manufacturing plants.

Question 7. What is Foreign Portfolio Investment (FPI)?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Investment in physical assets like real estate in foreign countries
3. Investment in short-term money market instruments in foreign markets.
4. Investment in a foreign company’s manufacturing plants and operations

Answer: 1. Investment in a diverse portfolio of stocks and bonds in foreign markets

Explanation:

Foreign Portfolio Investment (FPI) refers to investments made by individuals or institutions in foreign financial assets such as stocks and bonds.

Question 8. What is Foreign Institutional Investment (Fll)?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Investment in physical assets like real estate in foreign countries
3. Investment in short-term money market instruments in foreign markets
4. Investments made by foreign institutions in the domestic market

Answer: 4. Investment made by foreign institutions in the domestic market

Explanation:

Foreign Institutional Investment (Fll) is the investment made by foreign institutional investors in the domestic financial market of a country.

Question 9. What is Foreign Aid?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Financial assistance provided by one country to another for development projects
3. Investment in short-term money market instruments in foreign markets
4. Investments made by foreign institutions in the domestic market

Answer: 2. Financial assistance provided by one country to another for development projects

Explanation:

Foreign Aid refers to financial assistance or grants provided by one country to another for various purposes, such as development projects, humanitarian aid, or economic support.

Question 10. What is Foreign Debt?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Financial assistance- provided by one country to another for development projects
3. Debt owed by a country to foreign lenders or governments
4. Investments made by foreign institutions in the domestic market

Answer: 3. Debt owed by a country to foreign lenders or governments

Explanation:

Foreign Debt refers to the debt that a country owes to foreign lenders or governments, which could be in the form of loans or bonds issued in the international market.

Question 11. Foreign Direct Investment (FDI) involves

1. Short-term speculative investments in financial markets
2. Acquiring a significant ownership stake in a foreign company
3. Exporting goods and services to foreign markets
4. Purchasing foreign currency for investment purposes

Answer: 2. Acquiring a significant ownership stake in a foreign company

Question 12. Portfolio investment includes

1. Long-term investments in real estate and infrastructure projects
2. Investments in a variety of financial assets like stocks and bonds in foreign markets
3. Direct investments in foreign businesses to control their operations
4. Currency trading for speculative purposes

Answer: 2. Investments in a variety of financial assets like stocks and bonds in foreign markets

Question 13. Foreign Institutional Investment (FII) refers to

1. Investments made by foreign governments in domestic companies
2. Investments made by multinational corporations in foreign subsidiaries
3. Investments made by foreign institutional investors like mutual funds in the domestic  financial markets
4. Investments made by domestic investors in foreign financial markets

Answer: 3. Investments made by foreign institutional investors like mutual funds in the domestic  financial markets

Question 14. Official Development Assistance (OD(a) is a type of foreign capital provided by

1. Multinational corporations to support their global expansion
2. International organizations like the World Bank to fund infrastructure projects in developing  countries
3. Foreign governments to promote investment in specific sectors of their economy
4. Individual investors looking for diversification in foreign markets

Answer: 2. International organizations like the World Bank to fund infrastructure projects in developing  countries

Question 15. Remittances from overseas workers are an example of

1. FDI inflows from foreign companies establishing subsidiaries in a country
2. Portfolio investment by foreign investors in the domestic stock market
3. Foreign aid provided by international organizations to support social development
4. Foreign capital inflows from individuals sending money back to their home country

Answer: 4. Foreign capital inflows from individuals sending money back to their home country

Foreign Direct Investment (FDI)

Question 1. What is Foreign Direct Investment (FDI)?

1. Investments made by foreign individuals in the domestic stock market
2. Investment in foreign stocks and bonds through mutual funds
3. Investment in a foreign country to establish or acquire businesses or assets
4. Investment in short-term money market instruments in foreign markets

Answer: 3. Investment in a foreign country to establish or acquire businesses or assets

Explanation:

Foreign Direct Investment (FDI) refers to the investment made by a company or individual from one country into businesses or assets located in another country, to have lasting interest and control in foreign operations.

Question 2. What distinguishes Foreign Direct Investment (FDI) from Foreign Portfolio Investment (FPI)?

1. FDI involves investing in a diverse portfolio of foreign stocks and bonds.
2. FDI involves short-term investments in foreign money market instruments.
3. FDI involves acquiring significant ownership of foreign companies or assets.
4. FDI involves lending money to foreign governments.

Answer: 3. FDI involves acquiring significant ownership in foreign companies or assets.

Explanation:

The key distinction between FDI and FPI is that FDI involves acquiring substantial ownership and control in foreign businesses or assets, while FPI involves investing in financial assets such as stocks and bonds without taking ownership control.

Question 3. Which of the following is an example of Foreign Direct Investment (FDI)?

1. A foreign investor purchasing shares of a domestic company in the stock market.
2. A domestic company setting up a subsidiary in a foreign country to produce goods.
3. A domestic investor buys foreign stocks through an exchange-traded fund (ETF).
4. A foreign company acquires foreign government bonds.

Answer: 2. A domestic company setting up a subsidiary in a foreign country to produce goods.

Explanation:

Setting up a subsidiary in a foreign country to produce goods or conduct business is an example of FDI.

Question 4. What motivates companies to engage in Foreign Direct Investment (FDI)?

1. Short-term financial gains through speculative trading.
2. Access to new markets, resources, and technologies.
3. Hedging against currency fluctuations in the foreign exchange market.
4. Speculating on changes in interest rates in foreign markets.

Answer: 2. Access to new markets, resources, and technologies.

Explanation:

Companies engage in FDI to access new markets, resources, and technologies that may not be readily available in their home country.

Question 5. Which of the following is a potential benefit of Foreign Direct Investment (FDI) for the host country?

1. Increased exposure to foreign exchange rate fluctuations.
2. Decreased job opportunities due to competition from foreign investors.
3. Technology transfer and knowledge spillovers.
4. Limited access to global markets for local businesses.

Answer: 3. Technology transfer and knowledge spillovers.

Explanation:

FDI can bring technology transfer and knowledge spillovers to the host country, which can enhance local industries’ capabilities and stimulate economic development.

Question 6. What is Foreign Direct Investment (FDI)?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Investment in physical assets like real estate in foreign countries
3. Investment in short-term money market instruments in foreign markets
4. Investments made by foreign institutions in the domestic market

Answer: 2. Investment in physical assets like real estate in foreign countries

Explanation: 

Foreign Direct Investment (FDI) refers to the investment made by a company or individual in a foreign country to establish or acquire significant ownership in businesses, manufacturing plants, real estate, or other physical assets.

Question 7. Which of the following is an example of FDI?

1. A foreign investor buying shares of a foreign company’s stock
2. A domestic company setting up a subsidiary in a foreign country
3. A foreign company purchasing goods from a domestic company
4. A domestic investor investing in foreign government bonds

Answer: 2. A domestic company setting up a subsidiary in a foreign country

Explanation:

Setting up a subsidiary in a foreign country is an example of Foreign Direct Investment (FDI) as it involves the establishment of a physical presence in the foreign country.

Question 8. What distinguishes FDI from other types of foreign capital flows?

1. FDI involves short-term investments in financial assets
2. FDI involves investments in a diverse portfolio of stocks and bonds
3. FDI involves long-term investments in physical assets and businesses
4. FDI involves providing financial aid to foreign countries

Answer: 3. FDI involves long-term investments in physical assets and businesses

Explanation:

FDI is characterized by long-term investments in physical assets and businesses, which differentiates it from other types of foreign capital •flows such as Foreign Portfolio Investment (FPI) and Foreign Aid.

Question 9. How does FDI contribute to economic development in host countries?

1. FDI leads to increased trade deficits in host countries
2. FDI has no impact on the host country’s economy
3. FDI creates job opportunities and boosts infrastructure development
4. FDI increases the cost of living for residents

Answer: 3. FDI creates job opportunities and boosts infrastructure development

Explanation:

FDI can contribute positively to economic development in host countries by creating job opportunities, transferring technology and skills, and promoting infrastructure development.

Question 10. What are the potential risks of FDI for host countries?

1. Increased employment opportunities for residents
2. Dependence on foreign investors for economic growth
3. Decreased technology transfer to the host country
4. Improved competitiveness of local industries

Answer: 2. Dependence on foreign investors for economic growth

Explanation:

One potential risk of FDI for host countries is the dependence on foreign investors, which may affect the host country’s economic policies and development priorities.

Question 11. Foreign Direct Investment (FDI) refers to

1. Short-term speculative investments in financial markets
2. Acquiring a significant ownership stake in a domestic company by foreign investors
3. Exporting goods and services to foreign markets
4. Purchasing foreign currency for investment purposes

Answer: 2. Short-term speculative investments in financial markets

Question 12. FDI differs from portfolio investment in that FDI involves

1. Buying and selling financial assets like stocks and bonds in foreign markets
2. Long-term investments in real assets like property, factories, and businesses in a foreign  country
3. Exchanging one currency for another in the foreign exchange market
4. Providing financial assistance to countries facing balance of payments crises

Answer: 2. Long-term investments in real assets like property, factories, and businesses in a foreign  country

Question 13. FDI can be categorized into two types: horizontal and vertical FDI Horizontal FDI refers to

1. Investments made in the same industry or business activity as the. investor’s domestic  operations
2. Investments made in different industries or business activities from the investor’s domestic  operations
3. The acquisition of a controlling stake in a domestic company by a foreign government
4. The transfer of technology and knowledge between countries

Answer: 1. Investments made in the same industry or business activity as the . investor’s domestic  operations

Question 14. The main motivations for companies to engage in FDI include

1. Speculating on short-term exchange rate movements
2. Accessing new markets and customers
3. Earning profits from currency trading
4. Importing goods and services from foreign markets

Answer: 2. Accessing new markets and customers

Question 15. Host countries often encourage FDI by offering various incentives, which may include

1. Imposing high taxes and tariffs on foreign investors
2. Restricting foreign ownership in domestic companies
3. Providing tax breaks, subsidies, and favorable regulatory treatment to foreign investors
4. Limiting the repatriation of profits and dividends by foreign investors

Answer: 3. Providing tax breaks, subsidies, and favorable regulatory treatment to foreign investors

Foreign Portfolio Investment (FPI)

Question 1. What is Foreign Portfolio Investment (FPI)?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Investment in physical assets like real estate in foreign countries
3. Investment in short-term money market instruments in foreign markets
4. Investments made by foreign institutions in the domestic market ‘

Answer: 1. Investment in a diverse portfolio of stocks and bonds in foreign markets

Explanation:

Foreign Portfolio Investment (FPI)’ refers to investments made by individuals or institutions in a diverse set of financial assets such as stocks, bonds, and money market instruments in foreign markets.

Question 2. Which of the following is an example of FPI?

1. A foreign company setting up a subsidiary in a domestic country
2. A domestic investor buying shares of a domestic company’s stock
3. A domestic company purchasing real estate in a foreign country
4. A foreign institutional investor buying shares of a foreign company’s stock

Answer: 1. A foreign institutional investor buying shares of a foreign company’s stock

Explanation:

A foreign institutional investor buying shares of a foreign company’s stock represents a Foreign Portfolio Investment (FPI) as it involves investing in financial assets in foreign markets.

Question 3. What is the primary objective of FPI?

1. Long-term ownership and control of foreign businesses
2. Capital appreciation and short-term profits
3. Investment in physical assets for industrial purposes
4. Providing financial aid to foreign countries

Answer: 2. Capital appreciation and short-term profits

Explanation:

The primary objective of Foreign Portfolio Investment (FPI) is to seek capital appreciation and short-term profits by investing in financial assets that have the potential to increase in value.

Question 4. How does FPI differ from Foreign Direct Investment (FDI)?

1. FPI involves investments in physical assets and businesses
2. FPI involves long-term ownership and control of foreign businesses
3. FPI involves short-term investments in financial assets
4. FPI involves providing financial aid to foreign countries

Answer: 3. FPI involves short-term investments in financial assets

Explanation:

FPI is characterized by short-term investments in financial assets such as stocks and bonds, while Foreign Direct Investment (FDI) involves long-term investments in physical assets and businesses.

Question 5. How can FPI affect the volatility of financial markets in host countries?

1. FPI has no impact on the volatility of financial markets
2. FPI reduces the volatility of financial markets by diversifying investments
3. FPI can increase the volatility of financial markets due to capital flows
4. FPI only affects the volatility of foreign financial markets

Answer: 3. FPI can increase the volatility of financial markets due to capital flows

Explanation:

FPI can lead to increased volatility in the financial markets of host countries due to the flow of capital in and out of the market, especially during periods of uncertainty or changes in market sentiment.

Question 6. How is FPI different from Foreign Direct Investment (FDI)?

1. FPI involves long-term investments in physical assets, while FDI involves short-term investments in financial assets.
2. FPI involves investments in a diverse portfolio of stocks and bonds, while FDI involves investment in a foreign company’s manufacturing plants and operations. ,
3. FPI involves investments in infrastructure projects in foreign countries, while FDI involves providing financial aid to foreign countries.
4. FPI involves investment in the domestic market by foreign institutions, while FDI involves investment by domestic companies in foreign countries.

Answer: 2. FPI involves investments in a diverse portfolio of stocks and bonds, . while FDI involves investment in a foreign company’s manufacturing plants and operations.

Explanation:

FPI involves investments in financial assets, such as stocks and bonds, in foreign markets, while FDI involves direct investments in physical assets and businesses in foreign countries.

Question 7. Which of the following is an example of Foreign Portfolio Investment (FPI)?

1. A foreign company setting up a subsidiary in a foreign country
2. A domestic investor buying shares of a foreign company’s stock
3. A foreign company purchasing goods from a domestic company
4. A domestic company investing in foreign real estate

Answer: 2. A domestic investor buying shares of a foreign company’s stock

Explanation:

A domestic investor buying shares of a foreign company’s stock is an example of Foreign Portfolio  Investment (FPI) as it involves investing in a financial asset (stock) in a foreign market.

Question 8. What is the primary objective of investors engaging in FPI?

1. To gain control and ownership in foreign businesses
2. To acquire physical assets in foreign countries
3. To maximize short-term profits from currency fluctuations
4. To diversify their investment portfolio and earn returns

Answer: 4. To diversify their investment portfolio and earn returns

Explanation:

The primary objective of investors engaging in FPI is to diversify their investment portfolio, reduce risk, and earn returns from the investment. in foreign financial assets.

Question 9. How does FPI impact the foreign exchange market?

1. FPI has no impact on the foreign exchange market
2. FPI leads to increased exchange rate volatility
3. FPI affects the demand and supply of foreign currencies
4. FPI only impacts the stock market, not the foreign exchange market

Answer: 3. FPI affects the demand and supply of foreign currencies

Explanation:

FPI impacts the foreign exchange market by influencing the demand and supply of foreign currencies. Large FPI flows can impact exchange rates in the short term.

Question 10. Foreign Portfolio Investment (FPI) refers to

1. Acquiring a significant ownership stake in a domestic company by foreign investors
2. Buying and selling financial assets like stocks and bonds in foreign markets.
3. Exporting goods and services to foreign markets
4. Providing financial assistance to countries facing balance of payments crises

Answer: 2. Buying and selling financial assets like stocks and bonds in foreign markets.

Question 11. FPI differs from Foreign Direct Investment (FDI) in that FPI involves

1. Long-term investments in real assets like property, factories, and businesses in a foreign country
2. Short-term speculative investments in financial markets
3. The transfer of technology and knowledge between countries
4. Exporting goods and services to foreign markets

Answer: 2. Short-term speculative investments in financial markets

Question 12. FPI allows investors to

1. Acquire controlling stakes in domestic companies and. have a say in their management –
2. Diversify their investment portfolios across different countries and industries
3. Gain ownership of foreign real estate and infrastructure projects
4. Access government incentives and subsidies for foreign investments,

Answer: 2. Diversify their investment portfolios across different countries and industries

Question 13. The main instruments of FPI include

1. Foreign currencies and commodities
2. Real estate properties in foreign countries
3. Stocks, bonds, and other securities in foreign markets
4. Direct ownership of foreign companies

Answer: 3. Stocks, bonds, and other securities in foreign markets

Question 14. FPI can be more volatile than FDI due to

1. Longer investment horizons and strategic objectives
2. Government regulations and restrictions on foreign investors
3. Frequent buying and selling of financial assets in response to market conditions
4. Currency exchange rate fluctuations

Answer: 3. Frequent buying and selling of financial assets in response to market conditions

Reasons For Foreign Direct Investment

Question 1. Which of the following is a primary reason for Foreign Direct Investment (FDI)?

1. To diversify investment portfolios
2. To gain short-term profits from currency fluctuations,
3. To establish a physical presence in a foreign market
4. To provide financial aid to foreign countries

Answer: 3. To establish a physical presence in a foreign market

Explanation:

One of the primary reasons for Foreign Direct Investment (FDI) is to establish a physical presence in a foreign market, either by setting up a subsidiary or acquiring ownership of existing businesses.

Question 2. How does FDI contribute to market expansion for multinational corporations?

1. FDI leads to market contraction as companies focus on domestic operations
2. FDI allows companies to serve only domestic markets
3. FDI provides access to new foreign markets and customers
4. FDI limits companies to specific industries and sectors

Answer: 3. FDI provides access to new foreign markets and customers

Explanation:

FDI allows multinational corporations to expand their operations and access new foreign markets, thereby reaching a broader customer base.

Question 3. Why do companies engage in FDI for resource acquisition?

1. To increase competition in the domestic market
2. To access foreign markets with cheaper resources
3. To reduce dependence on foreign suppliers
4. To discourage international trade

Answer: 2. To access foreign markets with cheaper resources

Explanation:

Companies may engage in FDI to access foreign markets with cheaper resources, such as raw materials or labor, which can enhance their competitiveness.

Question 4. What role does FDI play in technology transfer?

1. FDI restricts technology transfer between countries
2. FDI does not impact technology transfer.
3. FDI encourages the transfer of technology to host countries
4. FDI is limited to specific technology-based industries

Answer: 3. FDI encourages the transfer of technology to host countries

Explanation:

FDI can facilitate the transfer of technology and know-how from investing companies to host countries, contributing to technological advancement in the host economies.

Question 5. How does FDI contribute to employment generation?

1. FDI leads to job losses as domestic companies face increased, competition
2. FDI has no impact on employment in host countries
3. FDI creates job opportunities through new business establishments
4. FDI focuses only on expatriate hiring, neglecting the local workforce

Answer: 3. FDI creates job opportunities through new business establishments

Explanation:

FDI can lead to employment generation in host countries as new business establishments and operations require a workforce, creating job opportunities for the local population.

Question 6. What are the primary reasons for Foreign Direct Investment (FDI)?

1. To provide financial aid to foreign countries
2. To diversify investment portfolios and reduce risk
3. To gain control and ownership in foreign businesses.
4. To invest in a diverse portfolio of stocks and bonds

Answer: 3. To gain control and ownership in foreign businesses

Explanation: 

One of the primary reasons for Foreign Direct Investment (FDI) is to gain – control and ownership in foreign businesses or acquire significant ownership stakes in overseas enterprises.

Question 7. How does FDI contribute to technology transfer?

1. FDI reduces technology transfer as companies prefer to retain technology within their home country
2. FDI has no impact on technology transfer between countries
3. FDI encourages technology transfer as companies bring advanced technologies to host countries
4. FDI limits technology transfer due to intellectual property protection concerns

Answer: 3. FDI encourages technology transfer as companies bring advanced technologies to host countries

Explanation:

FDI can facilitate technology transfer as multinational companies often bring advanced technologies, knowledge, and managerial expertise to the host countries where they invest.

Question 8. What role does FDI play in stimulating economic growth in host countries?

1. FDI has no impact on economic growth in host countries
2. FDI stimulates economic growth by promoting competition and efficiency
3. FDI only leads to economic growth in the home country of the investing company
4. FDI stimulates economic growth by increasing the trade deficit in host countries

Answer: 2. FDI stimulates economic growth by promoting competition and efficiency

Explanation:

FDI can stimulate economic growth in host countries by promoting competition, bringing in new technologies, generating employment, and ‘ enhancing overall efficiency in the economy.

Question 9. How does FDI contribute to job creation in host countries?

1. FDI does not contribute to job creation in host countries
2. FDI creates jobs only in the primary sector, such as agriculture
3. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy
4. FDI creates jobs in the host country’s government sector only

Answer: 3. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy ‘

Explanation:

FDI can create jobs across various sectors of the host country. economy, including primary (agriculture), secondary (manufacturing), and tertiary (services) sectors.

Question 10. What is the relationship between FDI and infrastructure development in host countries?

1. FDI has no impact on infrastructure development in host countries
2. FDI leads to infrastructure development only in the home country of the investing company
3. FDI can contribute to infrastructure development in host countries through investments in key sectors
4. FDI leads to a decline in infrastructure quality in host countries

Answer: 3. FDI can contribute to infrastructure development in host countries through investments in key sectors

Explanation:

FDI can contribute to infrastructure development in host countries by investing in key sectors such as transportation, communication, and utilities.

Question 11. Foreign Direct Investment (FDI) is undertaken by multinational corporations (MNCs) for various reasons. Which of the following is NOT a common reason for MNCs to engage in FDI?

1. Accessing new markets and customers
2. Reducing exposure to exchange rate fluctuations
3. Obtaining access to strategic resources and inputs
4. Taking advantage of lower labor costs in foreign countries

Answer: 2. Reducing exposure to exchange rate fluctuations

Question 12. MNCs often invest in foreign countries to gain access to new markets and customers. This strategy allows them to

1. Increase the costs of their products in foreign markets
2. Increase their domestic production and market share
3. Export their products from the home country at a lower cost
4. Tap into the growing demand for their goods and services in foreign markets

Answer: 4. Tap into the growing demand for their goods and services in foreign markets

Question 13. FDI can also be driven by the desire to obtain access to strategic resources and inputs, such as

1. Financial capital and foreign exchange reserves
2. Skilled labor and technology
3. Renewable energy sources like wind and solar power
4. Freshwater and arable land for agricultural production

Answer: 2. Skilled labor and technology

Question 14. Some MNCs invest in foreign countries to establish production facilities and take advantage of lower labor costs. This strategy is known as

1. Horizontal FDI
2. Vertical FDI
3. Portfolio investment
4. Official Development Assistance (OD(a)

Answer: 1. Horizontal FDI

Question 15. FDI can also be driven by the desire to avoid trade barriers and protectionist policies in foreign markets. By investing locally, MNCs can

1. Access government subsidies and tax breaks in the home country
2. Secure exclusive intellectual property rights in the foreign market
3. Bypass import tariffs and quotas imposed on foreign goods
4. Influence the exchange rate of the foreign currency

Answer: 3. Bypass import tariffs and quotas imposed on foreign goods

Modes Of Foreign Direct Investment (FDI)

Question 1. What are the different modes of Foreign Direct Investment (FDI)?

1. Outward FDI and Inward FDI
2. Horizontal FDI and Vertical FDI
3. Greenfield Investment and Cross-border Mergers and Acquisitions(M&(a)
4. Portfolio Investment and Direct Investment

Answer: 3. Greenfield investment and Cross-border Mergers and Acquisitions (M&(a)

Explanation:

The different modes of FDI include Greenfield investment, which involves setting up new businesses or facilities in a foreign country, and Cross-border Mergers and Acquisitions (M&(a), which involve acquiring existing foreign businesses.

Question 2. What is Greenfield investment in the context of FDI?

1. Acquisition of an existing foreign company ’
2. Investment in a diverse portfolio of stocks and bonds in foreign markets
3. Setting up new businesses or facilities in a foreign country
4. Providing financial aid to foreign countries

Answer: 3. Setting up new businesses or facilities in a foreign country

Explanation:

Greenfield investment involves establishing new businesses or facilities in a foreign country from the ground up, rather than acquiring existing ones.

Question 3. What are Cross-border Mergers and Acquisitions (M&(a) as a mode of FDI?

1. Investment in a diverse portfolio of stocks and bonds in foreign markets
2. Acquisition of an existing foreign company
3. Setting up new businesses or facilities in a foreign country
4. Providing financial aid to foreign countries

Answer: 2. Acquisition of an existing foreign company Explanation:

Cross-border Mergers and Acquisitions (M&(a) as a mode of FDI involves the acquisition of an existing foreign company or its assets by a foreign investor.

Question 4. How does Horizontal FDI differ from Vertical FDI?

1. Horizontal FDI involves investment in unrelated industries, while Vertical FDI involves investment in related industries.
2. Horizontal FDI involves investment in the same industry in different countries, while Vertical FDI involves investment in different industries in the same country.
3. Horizontal FDI involves investment in foreign stocks and bonds, while Vertical FDI involves investment in physical assets.
4. Horizontal FDI and Vertical FDI are the same; they refer to different terms for the same investment mode.

Answer: 2. Horizontal FDI involves investment in the same industry in different countries, while Vertical FDI involves investment in different industries in the same country.

Explanation:

Horizontal FDI occurs when a company invests in the same industry in different countries, while Vertical FDI occurs when a company invests in different industries, usually along the production chain, in the same country.

Question 5. What is the difference between Outward FDI and Inward FDI?

1. Outward FDI refers to FDI flows out of a country, while Inward FDI refers to FDI flows into a country.
2. Outward FDI involves Greenfield investment, while Inward FDI involves Cross-border Mergers and Acquisitions (M&(a).
3. Outward FDI is carried out by domestic companies, while Inward FDI is carried out by foreign companies.
4. Outward FDI has no impact on the home country’s economy, while Inward FDI has no impact on the host country’s economy.

Answer: 1. Outward FDI refers to FDI flows out of a country, while Inward FDI refers to FDI flows into a country.

Explanation:

Outward FDI refers to investments made by domestic companies in foreign countries, while Inward FDI refers to investments made by foreign companies in the domestic country.

Question 6. What is Greenfield FDI? 

1. FDI that involves acquiring existing companies in a foreign country
2. FDI involves setting up new businesses or facilities in a foreign country.
3. FDI that involves portfolio investments in foreign stocks and bonds
4. FDI that involves short-term investments in financial assets

Answer: 2. FDI that involves setting up new businesses or facilities in a foreign country

Explanation:

Greenfield FDI refers to the mode of FDI where a company sets up new businesses, manufacturing plants, or facilities in a foreign country from the ground up.

Question 7. What is Brownfield FDI?

1. FDI that involves acquiring existing companies in a foreign country
2. FDI that involves setting up new businesses or facilities in a foreign country
3. FDI that involves portfolio investments in foreign stocks and bonds
4. FDI that involves short-term investments in financial assets

Answer: 1. FDI that involves acquiring existing companies in a foreign country

Explanation:

Brownfield FDI refers to the mode of FDI where a company acquires or invests in existing companies, plants, or facilities in a foreign country.

Question 8. What is the key difference between Greenfield FDI and Brownfield FDI?

1. The level of risk involved in the investment
2. The source country of the FDI
3. The type of industry involved in the investment
4. The stage of development of the host country’s economy

Answer: 1. The level of risk involved in the investment

Explanation:

The key difference between Greenfield FDI and Brownfield FDI is the level of risk involved. Greenfield FDI carries’ higher risks as it involves starting a new venture from scratch, while Brownfield FDI involves investing in an existing business with a known track record.

Question 9. What are Cross-Border Mergers and Acquisitions (M&(a) FDI?

1. FDI that involves acquiring existing companies in the home country
2. FDI that involves setting up new businesses or facilities in a foreign country
3. FDI that involves acquiring or merging with foreign companies
4. FDI that involves investments in a diverse portfolio of foreign stocks ‘and bonds

Answer: 3. FDI that involves acquiring or merging with foreign companies

Explanation:

Cross-Border Mergers and Acquisitions (M&(a) FDI refers to the mode of FDI where a company from one country acquires or merges with a foreign company.

Question 10. What is Vertical FDI?

1. FDI that involves acquiring existing companies in a foreign country
2. FDI that involves setting up new businesses or facilities in a foreign country
3. FDI that involves investments in companies operating in the same industry
4. FDI that involves investments in companies at different stages of the production process

Answer: 4. FDI that involves investments in companies at different stages of the production process

Explanation:

Vertical FDI refers to the mode of FDI where a company invests in or acquires businesses that are at different stages of the production process, either upstream or downstream in the supply chain.

Question 11. Which mode of Foreign Direct Investment (FDI) involves the establishment of new operations or facilities in a foreign country?

1. Greenfield investment
2. Merger and acquisition
3. Portfolio investment
4. Joint venture

Answer: 1. Greenfield investment

Question 12. When a foreign company acquires a substantial ownership stake in an existing domestic company, it is known as

1. Greenfield investment
2. Merger and acquisition
3. Portfolio investment
4. Joint venture

Answer: 2. Merger and acquisition

Question 13. A joint venture in FDI is characterized by

1. A foreign company acquiring a domestic company to form a new entity
2. Two or more companies from different countries collaborating to create a new venture
3. A foreign company buying shares of a domestic company in the stock market
4. A multinational corporation investing in various financial assets in , foreign markets

Answer: 2. Two or more companies from different countries collaborating to create a new venture

Question 14. Which mode of FDI involves the acquisition of shares or ownership stakes in a domestic company without seeking full control over the company’s management?

1. Greenfield investment
2. Merger and acquisition
3. Portfolio investment
4. Joint venture

Answer: 3. Portfolio investment

Question 15. The primary motivation for multinational corporations to choose a joint venture as a mode of  FDI is

1. Access to new markets and customers
2. Obtaining full control over the foreign company’s management
3. Reducing exposure to exchange rate fluctuations
4. Access to low-cost resources and inputs in the foreign market

Answer: 1. Access to new markets and customers

Benefits Of Foreign Direct Investment

Question 1. How does Foreign Direct Investment (FDI) contribute to job creation in host countries?

1. FDI does not contribute to job creation in host countries
2. FDI creates jobs only in the primary sector, such as agriculture
3. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy
4. FDI creates jobs in the host country’s government sector only

Answer: 3. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy,

Explanation:

FDI can create jobs in various sectors of the host country’s economy, including primary (agriculture), secondary (manufacturing), and tertiary (services) sectors.

Question 2. How does FDI impact technology transfer in host countries?

1. FDI reduces technology transfer as companies prefer to retain technology within their home country
2. FDI has no impact on technology transfer between countries
3. FDI encourages technology transfer as companies bring advanced technologies to host countries
4. FDI limits technology transfer due to intellectual property protection concerns

Answer: 3. FDI encourages technology transfer as companies bring advanced technologies to host countries

Explanation:

FDI can facilitate technology transfer as multinational companies often bring advanced technologies, knowledge, and managerial expertise to the host countries where they invest.

Question 3. What role does FDI play in stimulating economic growth in host countries?

1. FDI has no impact on economic growth in host countries
2. FDI stimulates economic growth by promoting competition and efficiency
3. FDI only leads to economic growth in the home country of the investing company
4. FDI stimulates economic growth by increasing the trade deficit in host countries

Answer: 2. FDI stimulates economic growth by promoting competition and efficiency

Explanation:

FDI can stimulate economic growth in host countries by promoting competition, bringing in new technologies, generating employment, and enhancing overall efficiency in the economy.

Question 4. How does FDI contribute to infrastructure development in host countries?

1. FDI has no impact on infrastructure development in host countries
2. FDI leads to infrastructure development only in the home country of the investing company
3. FDI can contribute to infrastructure development in host countries through investments in key sectors
4. FDI leads to a decline in infrastructure quality in host countries

Answer: 3. FDI can contribute to infrastructure development in host countries through investments in key sectors

Explanation:

FDI can contribute to infrastructure development in host countries by investing in key sectors such as transportation, communication, and utilities.

Question 5. What is the relationship between FDI and export promotion in host countries?

1. FDI has no impact on export promotion in host countries
2. FDI leads to decreased exports in host countries
3. FDI can lead to export promotion as companies use host countries as a base for exporting goods and services
4. FDI only impacts the import sector of host countries

Answer: 3. FDI can lead to export promotion as companies use host countries as a base for exporting goods and services

Explanation:

FDI can promote exports in host countries as foreign companies may use the host country as a base to manufacture goods. and services for export to other markets.

Question 6. What are the potential benefits of Foreign Direct Investment (FDI) for host countries?

1. Increased trade deficits and currency devaluation
2. Loss of domestic ownership and control over industries
3. Technology transfer, job creation, and economic growth
4. Dependency on foreign investors for economic policies

Answer: 3. Technology transfer, job creation, and economic growth

Explanation:

FDI can bring technology transfer, create job opportunities, and stimulate economic growth in host countries.

Question 7. How does FDI contribute to technology transfer in host countries?

1. FDI has no impact on technology transfer in host countries
2. FDI restricts technology transfer to protect intellectual property rights
3. FDI promotes technology transfer as multinational companies bring advanced technologies
4. FDI only transfers outdated technologies to host countries

Answer: 3. FDI promotes technology transfer as multinational companies bring advanced technologies

Explanation:

FDI can facilitate technology transfer in host countries as multinational companies often bring advanced technologies and know-how.

Question 8. What is the role of FDI in creating job opportunities in host countries?

1. FDI has no impact on job creation in host countries
2. FDI creates jobs only in the primary sector, such as agriculture
3. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy
4. FDI only creates jobs for foreign workers, not for residents

Answer: 2. FDI creates jobs in the primary, secondary, and tertiary sectors of the economy.

Explanation:

FDI can create jobs across various sectors of the host country’s economy, including primary (agriculture), secondary (manufacturing), and tertiary (services) sectors.

Question 9. How does FDI contribute to economic growth in host countries?

1. FDI has no impact on economic growth in host countries
2. FDI leads to increased trade deficits and reduces economic growth
3. FDI stimulates economic growth by promoting competition and efficiency
4. FDI only benefits the investing company’s home country, not the host country

Answer: 3. FDI stimulates economic growth by promoting competition and efficiency

Explanation:

FDI can stimulate economic growth in host countries by promoting competition, introducing new technologies, generating employment, and improving overall efficiency in the economy.

Question 10. What is the relationship between FDI and infrastructure development in host countries?

1. FDI has no impact on infrastructure development in host countries
2. FDI leads to infrastructure development only in the home country of the investing company
3. FDI can contribute to infrastructure development in host countries through investments in key sectors
4. FDI only contributes to infrastructure development in large host countries

Answer: 3. FDI can contribute to infrastructure development in host countries through investments in key sectors

Explanation:

FDI can contribute to infrastructure development in host countries by investing in key sectors such as transportation, communication, and utilities.

Question 11. Foreign Direct Investment (FDI) can bring various benefits to the host country’s economy. Which of the following is NOT a common benefit of FDI for the host country?

1. Job creation and employment opportunities
2. Transfer of technology and knowledge
3. Increased competition leads to lower prices for consumers
4. Capital flight and loss of foreign exchange reserves

Answer: 4. Capital flight and loss of foreign exchange reserves

Question 12. FDI can contribute to economic growth and development in the host country by

1. Reducing competition in domestic markets
2. Repatriating profits and dividends to the home country
3. Encouraging domestic firms to innovate and improve their efficiency
4. Importing cheap labor from the home country

Answer: 3. Encouraging domestic firms to innovate and improve their efficiency

Question 13. One of the benefits of FDI for the host country is the creation of new jobs and employment opportunities. This is particularly crucial in countries with

1. High unemployment rates and limited domestic investment
2. Low foreign exchange reserves and budget deficits
3. Strong trade surpluses and a robust manufacturing sector
4. Stable political systems and low inflation rates

Answer: 1. High unemployment rates and limited domestic investment

Question 14. FDI can lead to technology spillovers in the host country, which refers to

1. The transfer of technology and knowledge from domestic firms to foreign investors
2. The transfer of technology and knowledge from foreign investors to domestic firms
3. The repatriation of technology and knowledge back to the home country
4. The acquisition of technology and knowledge by the host country’s government

Answer: 2. The transfer of technology and knowledge from foreign investors to domestic firms

Question 15. FDI can enhance the host country’s export competitiveness by

1. Increasing import tariffs and barriers to foreign competition
2. Subsidizing domestic industries to reduce production costs
3. Attracting foreign investment in export-oriented sectors
4. Reducing access to foreign markets for domestic firms

Answer: 3. Attracting foreign investment in export-oriented sectors

Potential Problems Associated With Foreign Direct Investment

Question 1. What are the potential problems associated with Foreign Direct Investment (FDI) for host countries?

1. Loss of domestic ownership and control over industries
2. Limited access to advanced technologies and managerial
3. Reduced employment opportunities due to foreign labor influx
4. Decreased competition and efficiency in the local market

Answer: 1. Loss of domestic ownership and control over industries

Explanation:

One potential problem associated with FDI for host countries is the loss, of domestic ownership and control over industries, especially if foreign investors acquire significant stakes in local companies.

Question 2. How can FDI lead to limited access to advanced technologies and managerial expertise in host countries?

1. FDI restricts technology transfer to protect intellectual property rights
2. Foreign companies do not bring advanced technologies to host countries
3. FDI is limited to investing in low-tech industries in host countries.
4. FDI has no impact on technology transfer in host countries

Answer: 1. FDI restricts technology transfer to protect intellectual property rights

Explanation:

Some foreign companies may restrict technology transfer to protect their intellectual property rights, limiting access to advanced technologies and managerial expertise in host countries.

Question 3. What is the potential problem of the “resource curse” associated with FDI?

1. Host countries become overly dependent on foreign investments.
2. FDI leads to an abundance of natural resources in host countries
3. FDI reduces economic growth in resource-rich host countries
4. Host countries experience a shortage of resources due to FDI

Answer: 1. Host countries become overly dependent on foreign investments

Explanation:

The “resource curse” refers to a situation where host countries become overly dependent on revenue from natural resource-based FDI, leading to economic challenges and vulnerabilities.

Question 4. How can FDI impact the local labor market in host countries?

1. FDI has no impact on the local labor market
2. FDI leads to increased job opportunities for local workers
3. FDI may result in wage disparities and job displacements
4. FDI only benefits foreign workers in the host country

Answer: 3. FDI may result in wage disparities and job displacements

Explanation:

FDI can lead to wage disparities and job displacements in the local labor market, as foreign companies may bring in skilled workers or use cheaper labor from their home countries.

Question 5. What is the potential problem of “tax competition” associated with FDI?

1. FDI leads to an increase in corporate taxes in host countries
2. Host countries may offer excessive tax incentives to attract FDI
3. FDI has no impact on the tax policies of host countries
4. FDI leads to a decrease in corporate taxes in host countries

Answer: 2. Host countries may offer excessive tax incentives to attract FDI

Explanation:

“Tax competition” refers to the practice of host countries offering excessive tax incentives to attract FDI, which may result in a reduction of government revenue and create distortions in the global
investment landscape.

Question 6. How can FDI lead to resource depletion in host countries?

1. FDI discourages the exploitation of natural resources in host countries
2. FDI leads to increased conservation efforts in host countries
3. FDI can result in the overexploitation of natural resources by foreign companies
4. FDI has no impact on the utilization of resources in host countries

Answer: 3. FDI can result in the overexploitation of natural resources by foreign companies

Explanation:

FDI can lead to resource depletion in host countries if foreign companies excessively exploit natural resources without adequate sustainability measures.

Question 7. What is the potential impact of FDI on income inequality in host countries?

1. FDI reduces income inequality by creating more job opportunities for all income groups
2. FDI has no impact on income inequality in host countries
3. FDI can exacerbate income inequality if benefits are primarily, concentrated among the wealthy
4. FDI leads to equal distribution of income among all segments of the population

Answer: 3. FDI can exacerbate income inequality if benefits primarily concentrate among the wealthy

Explanation:

FDI can potentially exacerbate income inequality in host countries if the benefits of investment primarily accrue to the wealthy or privileged segments of the population. ‘

Question 8. How can FDI affect the environment in host countries?

1. FDI has no impact on the environment in host countries
2. FDI encourages sustainable practices and environmental protection
3. FDI can lead to environmental degradation due to lax regulations and compliance
4. FDI improves the environment by promoting clean technologies

Answer: 3. FDI can lead to environmental degradation due to lax regulations and compliance

Explanation:

FDI can negatively impact the environment in host countries if foreign companies do not adhere to strict environmental regulations or if local regulations are lax.

Question 9. What is the potential risk of FDI-induced capital flight in host countries?

1. FDI encourages capital inflow, not capital flight
2. FDI can lead to the outflow of domestic capital due to the repatriation of profits.
3. FDI has no impact on domestic capital flows in host countries
4. FDI can lead to increased domestic savings and investment

Answer: 2. FDI can lead to the outflow of domestic capital due to repatriation of profits

Explanation:

FDI-induced capital flight can occur when foreign companies repatriate profits and dividends back to their home countries, leading to the outflow of domestic capital from the host country.

Question 10. One of the potential problems associated with FDI is the risk of

1. Increased competition leads to lower prices for consumers
2. Loss of jobs and employment opportunities in the host country
3. Technology spillovers and knowledge transfer to domestic firms
4. Enhanced export competitiveness for the host country’s industries

Answer: 2. Loss of jobs and employment opportunities in the host country

Question 11. Host countries may face a potential problem related to the repatriation of profits by foreign investors. This refers to

1. The transfer of profits and dividends from domestic firms to foreign investors
2. The transfer of profits and dividends from foreign investors to domestic firms
3. The reinvestment of profits within the host country’s economy
4. The increase in government revenue from corporate taxation

Answer: 1. The transfer of profits and dividends from domestic firms to foreign investors

Question 12. The term “resource curse” is used to describe a potential problem associated with FDI in some countries. It refers to

1. The abundance of natural resources leading to economic stagnation
2. The lack of essential resources for industrial development
3. The concentration of foreign investment in a few industries, neglecting other sectors
4. The successful exploitation of natural resources for economic growth

Answer: 1. The abundance of natural resources leads to economic stagnation

Question 13. A potential problem associated with FDI is the risk of creating a dependence on foreign technology and expertise. This could lead to

1. Enhanced technological capabilities of domestic firms
2. Increased competition in the domestic market
3. Reduced innovation and research and development activities
4. Diversification of the host country’s export markets

Answer: 3. Reduced innovation and research and development activities

Question 14. The “race to the bottom” is a potential problem that arises when countries compete to attract FDI by

1. Implementing high corporate tax rates to generate government revenue
2. Offering the highest labor wages to attract foreign investors.
3. Providing generous incentives and subsidies to foreign companies
4. Restricting foreign ownership in domestic companies

Answer: 3. Providing generous incentives and subsidies to foreign companies

Foreign Direct Investment In India

Question 1. What has been the trend of FDI inflows into India in recent years?

1. Declining trend
2. Stable with no significant changes
3. Fluctuating between high and low levels
4. Increasing trend

Answer: 4. Increasing trend

Explanation:

In recent years, FDI inflows into India have shown an increasing trend, with a rise in foreign investment across various sectors.

Question 2. Which sector attracts the highest FDI inflows in India?

1. Manufacturing
2. Agriculture
3. Services
4. Mining

Answer: 3. Services

Explanation:

The services sector, including areas like information technology, telecommunications, and financial services, attracts the highest FDI inflows in India.

Question 3. What is the government agency responsible for promoting and regulating FDI in India?

1. Reserve Bank of India (RBI)
2. Securities and Exchange Board of India (SEBI)
3. Foreign Investment Promotion Board (FIP(b)
4. Department for Promotion of Industry and Internal Trade (DPIIT)

Answer: 4. Department for Promotion of Industry and Internal Trade (DPIIT)

Explanation:

The Department for Promotion of Industry and Internal Trade (DPIIT) is responsible for promoting and regulating FDI in India.

Question 4. What are the key factors that attract foreign investors to India?

1. Low population and market size
2. Lack of skilled labor force
3. Favorable economic policies and market potential
4. High corporate tax rates

Answer: 3. Favorable economic policies and market potential

Explanation:

Favorable economic policies, a large and growing market potential, and other initiatives by the Indian government attract foreign investors to India.

Question 5. What is the “Make in India” campaign aimed at?

1. Encouraging foreign companies to exit the Indian market
2. Promoting domestic consumption of goods and services
3. Attracting foreign investment and promoting manufacturing in India
4. Encouraging Indian companies to invest overseas

Answer: 3. Attracting foreign investment and promoting manufacturing in India

Explanation:

The “Make in India” campaign is aimed at attracting foreign investment and promoting manufacturing in India to boost the country’s industrial and economic growth.

Question 6. What is the current regulatory body responsible for overseeing Foreign Direct Investment (FDI) in India?

1. Reserve Bank of India (RBI)
2. Securities and Exchange Board of India (SEBI)
3. Ministry of Finance, Government of India
4. Department for Promotion of Industry and Internal Trade (DPIIT)

Answer: 4. Department for Promotion of Industry and Internal Trade (DPIIT) Explanation:

The Department for Promotion of Industry and Internal Trade (DPIIT) is the regulatory body responsible for overseeing Foreign Direct Investment (FDI) in India.

Question 7. Which sector has traditionally attracted the highest FDI inflows in India? 

1. Information Technology (IT) and Business Process Outsourcing (BPO)
2. Agriculture and Agribusiness
3. Retail and Consumer Goods
4. Manufacturing and Automotive

Answer: 1.  Information Technology (IT) and Business Process Outsourcing (BPO)

Explanation:

The Information Technology (IT) and Business Process Outsourcing (BPO) sector has traditionally attracted the highest FDI inflows in India.

Question 8. What is the maximum limit of FDI allowed in the insurance sector in India?

1. 26%
2. 49%
3. 74%
4. 100%

Answer: 3. 74%

Explanation:

The maximum limit of FDI allowed in the insurance sector in India is 74%.

Question 9. Which policy initiative by the Indian government aims to improve the ease of doing business and attract more FDI?

1. Make in India
2. Swachh Bharat Abhiyan
3. Ayushman Bharat
4. Digital India

Answer: 1. Make in India

Explanation:

The Make in India initiative by the Indian government aims to promote manufacturing and improve the ease of doing business in the country to attract more Foreign Direct Investment (FDI).

Question 10. What is the primary source of Foreign Direct Investment (FDI) in India?

1. United States
2. China
3. United Kingdom
4. Singapore

Answer: 1. United States

Explanation:

The United States has been one of the primary sources of Foreign Direct. Investment (FDI) in India. Please note that FDI policies and regulations may change over time, so it is essential to refer to the latest information and official government sources for the most up-to-date information on FDI in India.

Question 11. Foreign Direct Investment (FDI) in India is regulated and governed by

1. The World Trade Organization (WTO)
2. The International Monetary Fund (IMF)
3. The Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEM(a)
4. The Ministry of External Affairs (ME(a)

Answer: 3. The Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEM(a)

Question 12. Which sector has historically attracted the highest FDI inflows in India?

1. Agriculture and allied activities
2. Manufacturing and industrial sectors
3. Information Technology (IT) and Business Process Outsourcing (BPO)
4. Healthcare and pharmaceutical industries

Answer: 3. Information Technology (IT) and Business Process Outsourcing (BPO)

Question 13. The “Make in India” initiative, launched by the Indian government, aims to

1. Promote domestic consumption and reduce imports
2. Attract foreign investment and enhance India’s manufacturing sector
3. Encourage emigration of skilled Indian workers to other countries
4. Strengthen India’s agricultural sector and increase food exports

Answer: 2. Attract foreign investment and enhance India’s manufacturing sector

Question 14. To attract FDI in specific sectors, the Indian government has allowed a higher level of FDI under the automatic route in areas such as

1. Defense and retail trading
2. Education and healthcare
3. Telecommunications’and insurance
4. Banking and financial services

Answer: 3. Telecommunications’and insurance

Question 15. The Indian government has implemented various policy measures to ease FDI inflows, such as

1. Imposing strict capital controls and restrictions on repatriation of profits
2. Limiting foreign ownership in domestic companies to protect domestic industries
3. Simplifying regulations, liberalizing foreign investment norms, and improving business environment
4. Banning foreign investment in sensitive sectors like defense and infrastructure

Answer: 3. Simplifying regulations, liberalizing foreign investment norms, and improving business environment

Overseas Direct Investment By Indian Companies

Question 1. What is Overseas Direct Investment (ODI) by Indian companies?

1. Investments made by foreign companies in India
2. Investments made by Indian companies in foreign countries
3. Investments made by Indian companies in other Indian companies
4. Investments made by foreign companies in other foreign countries

Answer: 2. Investment made by Indian companies in foreign countries

Explanation:

Overseas Direct Investment (ODI) refers to the investment made by Indian companies in foreign countries to establish or acquire significant ownership in businesses, manufacturing plants, or other assets abroad.

Question 2. What motivates Indian companies to make Overseas Direct Investments (ODI)?

1. To reduce the import of foreign goods
2. To acquire ownership of Indian companies
3. To expand their global footprint and access international markets
4. To increase competition in the domestic market

Answer: 3. To expand their global footprint and access international markets

Explanation:

Indian companies make Overseas Direct Investments (ODI) to expand their global presence, access international markets, and tap into new business opportunities abroad.

Question 3. How does Overseas Direct Investment (ODI) impact the Indian economy?

1. ODI has no impact on the Indian economy
2. ODI leads to increased imports and trade deficits
3. ODI can contribute to economic growth and job creation in India
4. ODI leads to decreased exports and a weaker currency

Answer: 3. ODI can contribute to economic growth and job creation in India Explanation:

ODI by Indian companies can contribute to economic growth in India by fostering international competitiveness and creating employment opportunities through expanded global operations.

Question 4. What role does the Reserve Bank of India (RBI) play in regulating Overseas Direct Investment (ODI) by Indian companies?

1. RBI restricts all ODI activities by Indian companies
2. RBI provides financial incentives to encourage ODI by Indian companies
3. RBI monitors and regulates the ODI activities of Indian companies
4. RBI promotes ODI in specific sectors through policy initiatives

Question 8. How does Overseas Direct Investment (ODI) contribute to India’s economic growth?

1. ODI leads to a reduction in India’s foreign exchange reserves
2. ODI has no impact on India’s economic growth
3. ODI enhances India’s global competitiveness and boosts export capabilities
4. ODI results in the outflow of skilled labor from India

Answer: 3. ODI enhances India’s global competitiveness and boosts export capabilities.

Explanation:

Overseas Direct Investment (ODI) by Indian companies enhances India’s global competitiveness by expanding their presence in international markets and increasing export capabilities. . 1

Question 9. What role does the Reserve Bank of India (RBI) play in regulating Overseas Direct Investment (ODI) by Indian companies?

1. RBI regulates and monitors the FDI inflows into India
2. RBI does not have any role in regulating ODI by Indian companies
3. RBI facilitates and promotes ODI by providing financial assistance
4. RBI approves and monitors ODI transactions by Indian companies

Answer: 4. RBI approves and monitors ODI transactions by Indian companies

Explanation:

The Reserve Bank of India (RBI) plays a role in regulating Overseas Direct Investment (ODI) by Indian companies by approving and monitoring their outward remittances for ODI purposes.

Question 10. Overseas Direct Investment (ODl) refers to

1. Foreign investment in India by multinational corporations
2. Investment in Indian companies by foreign investors
3. Indian companies investing in businesses and assets in foreign countries –
4. Foreign portfolio investment in Indian financial markets

Answer: 3. Indian companies investing in businesses and assets in foreign countries

Question 11. Indian companies undertake Overseas Direct Investment (ODI) primarily to

1. Gain access to new markets and customers abroad
2. Avoid competition from foreign companies in the Indian market
3. Obtain financial assistance from foreign governments
4. Reduce their domestic production and operations

Answer: 1. Gain access to new markets and customers abroad

Question 12. The Reserve Bank of India (RBI) regulates ODI by Indian companies. The regulatory framework aims to

1. Encourage Indian companies to invest only in neighboring countries
2. Restrict ODI to specific sectors in foreign countries
3. Liberalize ODI norms and simplify the approval process
4. Prohibit Indian companies from investing in foreign assets

Answer: 3. Liberalize ODI norms and simplify the approval process

Question 13. Which sector has seen significant Overseas Direct Investment (ODI) by Indian companies in recent years?

1. Agriculture and allied activities
2. Manufacturing and industrial sectors
3. Information Technology (IT) and Business Process Outsourcing (BPO)
4. Healthcare and pharmaceutical industries

Answer: 3. Information Technology (IT) and Business Process Outsourcing (BPO)

Question 14. The “Going Global” strategy is often pursued by Indian companies through ODI. This strategy  aims to

1. Focus solely on the domestic market and reduce foreign exposure
2. Diversify business risks by expanding into international markets
3. Attract foreign companies to invest in India
4. Limit foreign

Answer: 2. Diversify business risks by expanding into international markets