Which one of the following is an example of direct foreign investment?
A. General Motors building an auto production facility in China
B. The purchase of debt issued by the Panamanian government
C. A U.S. bank granting a loan to a Guatemalan firm
D. A U.S. government foreign aid grant to Bangladesh
My answer is A
I agree,
Great! Your answer is correct. General Motors building an auto production facility in China is an example of direct foreign investment.
To arrive at this answer, you need to understand what direct foreign investment means. Direct foreign investment refers to the investment made by a company or individual from one country into a business or project in another country. It involves the establishment of assets or the acquisition of a substantial ownership interest in a foreign business.
In option A, General Motors, a company based in the United States, is directly investing by building an auto production facility in China. This involves establishing physical assets and operations in a foreign country, which is a clear example of direct foreign investment.
Now let's analyze the other options to understand why they are not examples of direct foreign investment:
B. The purchase of debt issued by the Panamanian government: This is not considered direct foreign investment but rather a type of financial investment. Purchasing debt is more related to investing in the financial market rather than directly investing in a business or project.
C. A U.S. bank granting a loan to a Guatemalan firm: This is also not an example of direct foreign investment. It is a loan provided by a U.S. bank to a firm from Guatemala, but it does not involve owning or controlling assets or operations in the foreign country.
D. A U.S. government foreign aid grant to Bangladesh: This is not direct foreign investment either. Foreign aid grants are provided by governments to support the development or welfare of other countries, but they do not involve establishing ownership or control over assets or operations.
Therefore, option A, General Motors building an auto production facility in China, is the only example among the given options that represents direct foreign investment.