Lesson 36-Multiantional companies and foreign direct investments

Question 1

Define FDI’s

Answer 1

This refers to the inflow of foreign currency to a nation.

Question 2

What are the methods used by a govt to encourage FDI’s and MNC’s

Answer 2

1. Tax concessions
2. Subsidies
3. Invest in own infrastructure
4. Education and training of the workforce
5. Reducing administrative red tape and bureaucracy

Question 3

Define development aid

Answer 3

This is money given in the form of loans and grants to developing countries by developed countries to be spent on areas such as infrastructure, education and training programs and developments in technology.

Question 4

What is the difference between grants and loans

Answer 4

Grants do not have to be repaid unlike loans that have to be paid back and interest does not have to be paid either for grants unlike loans.

Question 5

Define MNC’s

Answer 5

These are organizations that produce and sell products in more than one country.

Question 6

3 reasons for the existence of MNC’s

Answer 6

1.Economies of scale- These organizations operate on a large scale which enables them to exploit the benefits of EOS hence have access to cheap resources
2. Marketing- Large organizations can afford to use heavy advertising campaigns and promotions to achieve brand loyalty
3. Financial superiority- Large organizations can afford to invest enormous sums of money on R and D. The make huge profits that gives them a competitive advantages over smaller firms. They have the resources to take risks and invest on the most taleneted people.

Question 6

State 5 advantages of MNC’s

Answer 6

1. The reputation and image that MNC’s portray indicates they are able to obtain a very high level of brand loyalty as they are able to spend heavily on advertising and promotions.
2. They are able to obtain cheap raw materials and labor as a result can lower their cost of production which gives them an edge over rivals in the form of lower prices.
3. MNC’s are encourages tp set up by certain govts of countries in the from of tax reliefs and concessions.
   4.Since they are very large organizations they import modern technology to a country
4. MNC’s enable a govt to benefit from an increase in tax revenues when they make a profit which can be sued to improve infrastructure and provide better public and merit goods

Question 7

4 disadvantages of MNC’s

Answer 7

1. Infant industries may be wiped out as they have not achieved their minimum efficient scale thus will have high prices thus will not be able to survive the competition.
2. MNC’s are in a position to influence certain decisions made by a govt of a country such as higher taxes or interest rates by threatening them of shutting down the business.
3. Unemployment will be created when MNC’s leave a country
4. Repatriation of profits