Question

Compared to international trade, direct foreign investment generally results in ____ exposure to international political risk and ____ exposure to international economic conditions.

a) Higher; higher
b) Lower; lower
c) Higher; lower
d) Lower; higher

Answer 1

Compared to international trade, direct foreign investment generally results in higher exposure to international political risk and lower exposure to international economic conditions.

Step-by-step explanation:

Compared to international trade, direct foreign investment generally results in higher exposure to international political risk and lower exposure to international economic conditions.

Direct foreign investment involves purchasing more than ten percent of a company and assuming managerial responsibility, while international trade involves the exchange of goods and services across borders. Direct foreign investment exposes investors to political risks such as changes in government policies, regulations, or instability in the host country. On the other hand, international trade is influenced by economic conditions such as exchange rates, tariffs, and trade barriers.

Therefore, direct foreign investment has higher exposure to international political risk as it is directly affected by the political environment of the host country. However, it has lower exposure to international economic conditions compared to international trade.