The Best Means of Using Direct Foreign Investment (DFI) to Fully

question 27

Multiple Choice

The best means of using direct foreign investment (DFI) to fully benefit from cheap foreign factors of production is probably to:

• A) acquire a competitor that has controlled its local market.
• B) establish a subsidiary in a new market that can sell products produced elsewhere; this allows for increased production and possibly greater production efficiency.
• C) establish a subsidiary in a market that has relatively low costs of labor and land; sell the finished product to countries where the cost of production is higher.
• D) establish a subsidiary in a market in which raw materials are cheap and accessible; sell the finished product to countries in which the raw materials are more expensive.

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Definitions:

Cash Sales

Transactions where payment for goods or services is made at the time of sale in cash or equivalent forms.

Credit Sales

Sales made by a business where payment is delayed, allowing the customer to purchase goods or services on account.

Accrual Basis

The Accrual Basis of accounting records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

Rent Expense

The cost incurred from leasing a space, property, or equipment for business operations or personal use over a specified time period.