115. Foreign direct investment (FDI) ( ) - purchase of physical assets, such as plants and equipment, establishment of foreign subsidiaries, investment in additional production facilities in a foreign country, to be managed by the parent corporation.
116. Portfolio investment ( ) - purchase of foreign stocks and bonds, not involving a controlling interest.
117. Joint venture ( ) - a business venture that is owned by two or more other business ventures. Often the several business owners are from different countries.
118. Multinational corporation ( - ) - a business firm chartered as a corporation in one nation which employs resources and sells its products (often through subsidiary corporations) in other nations of the world; a company that has direct investments in more than one country.
119. Motivations for making FDI ( ) - market seeking, raw material seeking, production efficiency seeking, knowledge seeking, political safety seeking.
120. Competitive advantages of multinational firms ( ) - 1) economies of scale arising from their large size; 2) managerial and marketing expertise; 3) superior technology owing to their heavy emphasis on research; 4) financial strength; 5) differentiated products.
121. Modes of foreign entry ( ): 1) a joint venture with one or more local parties; 2) a 100%-owned greenfield (newly established) foreign subsidiary; 3) a merger with or acquisition of an existing local firm; 4) a strategic alliance with one or more partners.
122. Fronting loan ( ) - is a parent-to-affiliate loan channeled through a financial intermediary, usually a large international bank.
123. Back-to-back (parallel) loan ( ) - involves offsetting loans between commercial business firms in separate countries arranged outside the banking system.
124. Direct intracompany loan ( ) - the parent or an affiliate loans directly to the borrowing affiliate, and at a later date the borrowing affiliate repays the principal and the interest.
125. Short-term or intermediate-term portfolio investment ( ) - bonds, bank time deposits, government treasury bills, etc.
126. Factors minimizing the cost of capital (, ) -1) the degree of cash flow coverage of fixed charges under varying market conditions; 2) availability of capital; 3) foreign exchange risk and political risk.
127. Foreign exchange (currency) risk ( ) - the possibility of unanticipated foreign exchange rate changes that directly effects on the value of local cash flows and indirectly effects on the competitive position of the foreign affiliate.
128. Inconvertibility risk ( ) - is the risk that the investor will not be able to convert profits as well as the original capital invested, into dollars.
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129. Political (sovereign) risk ( ) - the possibility of political events having an influence on the economic well-being of the parent firm; can reduce the value or availability of expected cash flows.
130. Capital flight ( ) - movement of funds out of a country because of political risk.
131. Expropriation risk ( ) - is the risk that the host government for one year prevents the investor or the foreign affiliate from exercising effective control over use of the property.
Investment insurance and guarantees:
132. War, revolution, insurrection, and civil strife coverage ( , , , ) - applies primarily to the damage of physical property of the insured.
133. Business income coverage ( , ) - provides compensation for loss of business income resulting from events of political violence that directly cause damage to the assets of a foreign enterprise.
134. Overseas Private Investment Corporation ( ) - since 1969, - government-owned organization that provides the U.S. investment insurance and guarantee program.
