Final answer:
The statement that a German company building an automobile factory in the US is engaging in foreign direct investment (FDI) is true. FDI includes starting new enterprises in foreign countries and involves transferring capital and taking management control.
Step-by-step explanation:
When a German company decides to build an automobile factory in the United States, this action is considered foreign direct investment (FDI). FDI occurs when a firm from one country makes a substantial investment into building a factory or acquiring a significant stake in a company in another country. Building a factory qualifies as starting up a new enterprise, which falls under the category of FDI. It's important to note that FDI is more than a financial transaction; it's a form of investment where control goes beyond financial interest and extends into the management and control of a business.
An example of this is when a Belgian company, InBev, bought U.S. firm Anheuser-Busch. For InBev to complete this transaction, they had to supply the foreign exchange market with euros and demand U.S. dollars, making it an FDI. Similarly, the action of the German firm building a factory in the U.S. involves an international transfer of capital and results in the firm managing a new enterprise on foreign soil.
The opening of automobile factories by multinational corporations like Volkswagen, Toyota, and others in countries different from their headquarters due to factors like lower labor costs conveys the widespread nature of FDI in the global economy.