alleryStart learning →What is direct foreign investment?
ALending money to a foreign government at a fixed rate
BBuying shares in a foreign firm purely for the dividend
CPaying a royalty to use foreign proprietary knowledge
DActive ownership of a foreign company or of overseas facilities
Answer & Solution
Correct answer: D. Active ownership of a foreign company or of overseas facilities
1. Direct foreign investment is active ownership rather than passive holding.
2. It covers ownership of a foreign company or of overseas manufacturing or marketing facilities.
3. Direct investors hold either a controlling interest or a large minority interest.
4. Paying a royalty for knowledge is licensing rather than investment.
5. Lending to a government creates a debt claim rather than ownership.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 3 "Competing in the Global Marketplace", section 3.6 Participating in the Global Marketplace_
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