How is foreign direct investment different from other types of international financial flows?
What will be an ideal response?
Foreign direct investment is different from other types of international financial flows. For example, a U.K. bank could give a loan to a Chinese company, which would use the borrowed funds to invest in its business. Like foreign direct investment, this loan would create a flow of funds between the United Kingdom and China, but it would not be foreign direct investment, since the business would not be owned by a company or a person in the U.K. Instead, the Chinese company would owe money to the U.K. bank that originated the loan.
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If a savings and loan "pools risk," which of the following must it do?
A) take funds in from a large number of lenders B) have a large spread between the interest rate it charges borrowers and the interest rate it pays lenders C) lend money to a large number of firms D) Both answers A and C are correct.
Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE) sites—Brown County, Wisconsin, and St
Joseph County, Indiana—John Mulford of Rand Research estimates the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners. Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites? A) Housing expenditures will decrease by a small amount. B) Housing expenditures will increase significantly. C) Housing expenditures in HASE sites will fall significantly as recipients move out of these areas to higher-income areas. D) Housing expenditures will increase, but not significantly.