Question

Direct investment is:

a. A joint venture in which the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.

b. A joint venture in which a company contracts with manufacturers in a foreign market to produce its product or provide its service.

c. Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

d. Entering foreign markets by developing an agreement with a licensee in the foreign market.

Answer 1

Foreign direct investment (FDI) refers to purchasing a firm (at least ten percent) in another country or starting up a new enterprise in a foreign country. It involves an investor who supplies domestic currency and demands a foreign currency. The correct answer is C.

Step-by-step explanation:

Foreign direct investment (FDI) refers to purchasing a firm (at least ten percent) in another country or starting up a new enterprise in a foreign country. It involves an investor who supplies domestic currency and demands a foreign currency. For example, in 2008, the Belgian beer-brewing company InBev bought the U.S. beer-maker Anheuser-Busch for $52 billion. In this case, InBev supplied euros (the currency of Belgium) to the foreign exchange market and demanded U.S. dollars. FDI is a long-term investment that often includes managerial responsibilities.

Foreign direct investment is when an investor acquires a significant stake (>10%) in a foreign company, often taking a managerial role and committing to a long-term relationship. It contrasts with portfolio investment, which is usually smaller in scale and shorter-term focused.

The student's question pertains to the understanding of foreign direct investment. Foreign direct investment (FDI) involves an investor acquiring more than ten percent of a company, and usually taking on managerial responsibility. This form of investment is characterized by a long-term focus, contrasting with portfolio investment where the investor typically buys less than ten percent of a company and may have a shorter-term outlook. One prominent example of foreign direct investment is InBev's acquisition of Anheuser-Busch. This transaction required InBev to exchange euros for U.S. dollars to complete the investment, underlying the interaction between currency markets and cross-border investments.

Therefore, referring to the student's options, the correct answer is (c) entering a foreign market by developing foreign-based assembly or manufacturing facilities, or by purchasing a significant portion of a foreign company, thus engaging in activities that are more permanent and involved than other investment strategies.