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Foreign Direct Investment: A Catalyst for Economic Growth

Description: This quiz aims to assess your understanding of Foreign Direct Investment (FDI) and its role as a catalyst for economic growth. The questions cover various aspects of FDI, including its definition, benefits, challenges, and impact on economic development.
Number of Questions: 15
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Tags: economics foreign direct investment economic growth
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What is Foreign Direct Investment (FDI)?

  1. Investment made by a domestic company in a foreign country

  2. Investment made by a foreign company in a domestic country

  3. Investment made by a government in a foreign country

  4. Investment made by a government in a domestic country


Correct Option: B
Explanation:

FDI refers to the investment made by a company or individual from one country into a company or asset in another country.

Which of the following is NOT a benefit of FDI?

  1. Increased employment opportunities

  2. Transfer of technology and skills

  3. Increased exports and foreign exchange earnings

  4. Increased government revenue


Correct Option: D
Explanation:

While FDI can contribute to increased government revenue through taxes and other levies, it is not a direct benefit of FDI.

Which sector in India has received the highest FDI in recent years?

  1. Manufacturing

  2. Services

  3. Agriculture

  4. Infrastructure


Correct Option: B
Explanation:

The services sector in India, including industries such as IT, telecommunications, and financial services, has consistently attracted the highest FDI inflows.

What is the role of FDI in economic growth?

  1. It increases the productive capacity of the economy

  2. It creates employment opportunities

  3. It promotes technological advancement

  4. All of the above


Correct Option: D
Explanation:

FDI contributes to economic growth by increasing productive capacity, creating employment, promoting technological advancement, and enhancing exports.

Which country is the largest source of FDI in India?

  1. United States

  2. Singapore

  3. United Kingdom

  4. Japan


Correct Option: B
Explanation:

Singapore has been the largest source of FDI in India in recent years, followed by the United States and the United Kingdom.

What is the impact of FDI on the host country's balance of payments?

  1. It improves the balance of payments

  2. It worsens the balance of payments

  3. It has no impact on the balance of payments

  4. It depends on the specific circumstances


Correct Option: D
Explanation:

The impact of FDI on the balance of payments depends on factors such as the type of FDI, the sector in which it is invested, and the overall economic conditions of the host country.

Which of the following is NOT a challenge associated with FDI?

  1. Potential job losses in certain sectors

  2. Environmental degradation

  3. Exploitation of labor

  4. Increased economic growth


Correct Option: D
Explanation:

Increased economic growth is a benefit of FDI, not a challenge.

What is the role of government policies in attracting FDI?

  1. Creating a favorable investment climate

  2. Providing incentives and concessions to foreign investors

  3. Protecting intellectual property rights

  4. All of the above


Correct Option: D
Explanation:

Government policies play a crucial role in attracting FDI by creating a conducive investment environment, providing incentives, and protecting intellectual property rights.

What is the difference between FDI and Foreign Institutional Investment (FII)?

  1. FDI involves long-term investment in a company or asset

  2. FII involves short-term investment in stocks and bonds

  3. FDI is regulated by the government

  4. All of the above


Correct Option: D
Explanation:

FDI involves long-term investment in a company or asset, while FII involves short-term investment in stocks and bonds. FDI is typically regulated by the government, while FII is not.

Which international organization is responsible for promoting and regulating FDI?

  1. World Trade Organization (WTO)

  2. International Monetary Fund (IMF)

  3. United Nations Conference on Trade and Development (UNCTAD)

  4. World Bank


Correct Option: C
Explanation:

UNCTAD is the United Nations body responsible for promoting and regulating FDI.

What is the impact of FDI on the host country's exchange rate?

  1. It appreciates the exchange rate

  2. It depreciates the exchange rate

  3. It has no impact on the exchange rate

  4. It depends on the specific circumstances


Correct Option: D
Explanation:

The impact of FDI on the exchange rate depends on factors such as the size of the FDI, the sector in which it is invested, and the overall economic conditions of the host country.

Which of the following is NOT a measure of FDI?

  1. Gross Domestic Product (GDP)

  2. Foreign Direct Investment (FDI) inflows

  3. Foreign Direct Investment (FDI) stock

  4. Foreign Direct Investment (FDI) outflows


Correct Option: A
Explanation:

Gross Domestic Product (GDP) is a measure of the total value of goods and services produced in a country, not a measure of FDI.

What is the difference between Greenfield FDI and Brownfield FDI?

  1. Greenfield FDI involves investing in a new project or facility

  2. Brownfield FDI involves investing in an existing project or facility

  3. Greenfield FDI is more risky than Brownfield FDI

  4. All of the above


Correct Option: D
Explanation:

Greenfield FDI involves investing in a new project or facility, while Brownfield FDI involves investing in an existing project or facility. Greenfield FDI is typically more risky than Brownfield FDI.

Which of the following is NOT a factor that affects the decision of a foreign company to invest in a host country?

  1. Political stability

  2. Economic growth prospects

  3. Availability of skilled labor

  4. Favorable tax policies


Correct Option:
Explanation:

All of the factors mentioned are important considerations for foreign companies when making investment decisions.

What is the role of FDI in promoting sustainable development?

  1. It can contribute to technology transfer and innovation

  2. It can create employment opportunities and reduce poverty

  3. It can help in the development of infrastructure and public services

  4. All of the above


Correct Option: D
Explanation:

FDI can contribute to sustainable development by promoting technology transfer and innovation, creating employment opportunities and reducing poverty, and helping in the development of infrastructure and public services.

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