In Which Way Can the Source Country's Balance of Payments

question 63

Multiple Choice

In which way can the source country's balance of payments benefit from FDI made in a foreign country?

• A) from cash outflow during the initial investment to finance the FDI
• B) if the purpose of the foreign investment is to serve the home market from a low-cost production location
• C) from the inward flow of foreign earnings
• D) if FDI is a substitute for direct exports

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Definitions:

Productive

The efficiency at which an individual, company, or economy can convert input resources into useful output.

Diminish Profits

The reduction in the amount of earnings as a result of increased costs, decreased revenue, or both.

Economic Profit

The financial difference created by subtracting total explicit and implicit expenses from total revenue in a company.

Fixed Input

A resource or factor of production whose quantity does not change with the level of output in the short run.