Question

"Hyundai, a South Korean automotive company, opened a manufacturing plant in Alabama, a US state, this is an example of O exports O imports foreign direct investment foreign portfolio investment

Answer 1

A foreign direct investment (FDI) can be defined as an investment in the form of a controlling ownership in a business in any nation through an entity based in another country. It means there is direct control of the owner of the company.

  A portfolio investment can be defined as an ownership of a stock, bond, or other financial asset and it is owned for earning the return in future over a period of time in any country. It mean there is a passive control rather than direct control in the company.

So when Hyundai, a South Korean automotive company, opened a manufacturing plant in Alabama, a US state, this is an example of foreign direct investment because there is a direct control on the plant.

Hence option third is the correct answer.

2.

In equilibrium

Y=C+I+G+NX

(Y-C-G)- I =NX

S-I=NX

Net capital outflow (NCO)= NX

Hence option second is the correct answer.

3.

Money multiplier= 1/ reserve requirement

RR=5%

=0.05

Money multiplier=1/0.05

=20

If Fed bought government bonds from a bank worth of $100,

Increase in money supply= change in money* money multiplier

=$100*20

=$2000

Hence option fourth is the correct answer.

4.

A decrease in the US interest rate leads to more demand for foreign currency and less demand for US dollar, so there will be more outflow of capital from USA. So the demand for dollar decrease and dollar depreciates. Hence exchange rate increases. Everyone try to hold foreign currency instead of dollar. Hence supply of US dollar increase in the foreign exchange market.

Hence option second is the correct answer.