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Foreign Direct Investment (FDI)

Description: This quiz covers the topic of Foreign Direct Investment (FDI) in Indian Economics.
Number of Questions: 15
Created by:
Tags: fdi foreign trade balance of payments
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What is the primary objective of Foreign Direct Investment (FDI)?

  1. To promote economic growth and development.

  2. To increase exports and reduce imports.

  3. To stabilize the exchange rate.

  4. To attract foreign tourists.

Show answer
Correct Option: A
Explanation:

FDI is primarily aimed at promoting economic growth and development by bringing in capital, technology, and expertise from foreign investors.

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

  1. Manufacturing

  2. Services

  3. Agriculture

  4. Mining

Show answer
Correct Option: B
Explanation:

The services sector in India, including sectors like telecommunications, financial services, and IT, has consistently attracted the highest FDI inflows.

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

  1. FDI involves long-term investment in a company, while FII involves short-term investment in stocks and bonds.

  2. FDI is regulated by the Reserve Bank of India (RBI), while FII is regulated by the Securities and Exchange Board of India (SEBI).

  3. FDI is subject to government approval, while FII is not.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI and FII differ in terms of investment duration, regulatory bodies, and government approval requirements.

Which government body in India is responsible for approving FDI proposals?

  1. Reserve Bank of India (RBI)

  2. Foreign Investment Promotion Board (FIPB)

  3. Ministry of Finance

  4. Department of Industrial Policy and Promotion (DIPP)

Show answer
Correct Option: D
Explanation:

The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry is responsible for approving FDI proposals in India.

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

  1. It can lead to increased economic growth.

  2. It can create employment opportunities.

  3. It can improve the balance of payments.

  4. It can transfer new technology and skills.

  5. All of the above.

Show answer
Correct Option: E
Explanation:

FDI can positively impact the host country's economy by promoting economic growth, creating employment, improving the balance of payments, and transferring new technology and skills.

Which country has been the largest source of FDI inflows into India in recent years?

  1. United States

  2. United Kingdom

  3. Singapore

  4. Japan

Show answer
Correct Option: C
Explanation:

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

What is the concept of 'FDI spillovers'?

  1. The positive effects of FDI on the host country's economy beyond the direct investment.

  2. The negative effects of FDI on the host country's economy.

  3. The transfer of technology and skills from foreign investors to local firms.

  4. The impact of FDI on the host country's exchange rate.

Show answer
Correct Option: A
Explanation:

FDI spillovers refer to the positive effects of FDI on the host country's economy beyond the direct investment, such as increased productivity, technological advancements, and improved competitiveness.

What is the role of FDI in promoting sustainable development?

  1. It can help transfer environmentally friendly technologies.

  2. It can create employment opportunities in green industries.

  3. It can promote corporate social responsibility.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI can contribute to sustainable development by transferring environmentally friendly technologies, creating employment opportunities in green industries, and promoting corporate social responsibility.

What are some of the challenges associated with FDI?

  1. It can lead to job losses in certain sectors.

  2. It can result in the exploitation of workers.

  3. It can have negative environmental impacts.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI can pose challenges such as job losses in certain sectors, exploitation of workers, and negative environmental impacts, which need to be carefully managed.

How does FDI contribute to the development of infrastructure in the host country?

  1. It can provide funding for infrastructure projects.

  2. It can bring in expertise and technology for infrastructure development.

  3. It can create employment opportunities in the construction sector.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI can contribute to infrastructure development by providing funding, expertise, technology, and employment opportunities in the construction sector.

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

  1. It can lead to appreciation of the currency.

  2. It can lead to depreciation of the currency.

  3. It can have no impact on the currency.

  4. The impact depends on various factors.

Show answer
Correct Option: D
Explanation:

The impact of FDI on the host country's currency depends on factors such as the size of the FDI inflows, the economic conditions of the country, and the monetary policy of the central bank.

What is the difference between 'greenfield investment' and 'brownfield investment' in the context of FDI?

  1. Greenfield investment involves setting up a new facility, while brownfield investment involves acquiring an existing facility.

  2. Greenfield investment is more common in developing countries, while brownfield investment is more common in developed countries.

  3. Greenfield investment is typically more risky than brownfield investment.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

Greenfield investment involves setting up a new facility from scratch, while brownfield investment involves acquiring an existing facility. Greenfield investment is more common in developing countries, and it is typically more risky than brownfield investment.

What is the role of FDI in promoting innovation and technological advancement in the host country?

  1. It can bring in new technologies and expertise.

  2. It can create a competitive environment that encourages innovation.

  3. It can provide funding for research and development.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI can promote innovation and technological advancement by bringing in new technologies and expertise, creating a competitive environment, and providing funding for research and development.

What is the concept of 'FDI screening'?

  1. The process of evaluating FDI proposals to ensure they align with national interests.

  2. The process of identifying potential investors for FDI projects.

  3. The process of negotiating FDI agreements between countries.

  4. The process of monitoring FDI inflows and outflows.

Show answer
Correct Option: A
Explanation:

FDI screening is the process of evaluating FDI proposals to ensure they align with the national interests of the host country, considering factors such as economic impact, security concerns, and environmental considerations.

What is the importance of FDI in the context of global economic integration?

  1. It facilitates the flow of capital, technology, and expertise across borders.

  2. It promotes economic growth and development on a global scale.

  3. It helps reduce trade barriers and promote free trade.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

FDI plays a crucial role in global economic integration by facilitating the flow of capital, technology, and expertise across borders, promoting economic growth and development on a global scale, and helping reduce trade barriers and promote free trade.

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