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International Business, 12e (Hill)
Chapter 8 Foreign Direct Investment
1) The amount of foreign direct investment (FDI) undertaken over a given time period is known as
the flow of FDI.
Answer: TRUE
Explanation: The flow of FDI refers to the amount of FDI undertaken over a given time period
(normally a year).
Difficulty: 1 Easy
Topic: Trends in Foreign Direct Investment
Learning Objective: 08-01 Recognize current trends regarding foreign direct investment (FDI) in
the world economy.
Bloom's: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) FDI has been declining in the last few decades because protectionist pressures have become less
intense.
Answer: FALSE
Explanation: Despite the general decline in trade barriers over the past 30 years, firms still fear
protectionist pressures. Executives see FDI as a way of circumventing future trade barriers.
Difficulty: 1 Easy
the world economy.
Bloom's: Understand
3) Mergers and acquisitions are quicker to execute than greenfield investments.
Answer: TRUE
Explanation: Mergers and acquisitions are quicker to execute than greenfield investments. This is
an important consideration in the modern business world where markets evolve very rapidly.
Difficulty: 1 Easy
the world economy.
Bloom's: Understand
1
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written consent of McGraw-Hill Education.
4) Licensing involves the establishment of a new operation in a foreign country.
Answer: FALSE
Explanation: Licensing involves granting a foreign entity (the licensee) the right to produce and
sell the firm's product in return for a royalty fee on every unit sold.
Difficulty: 1 Easy
Topic: Theories of Foreign Direct Investment
Learning Objective: 08-02 Explain the different theories of FDI.
Bloom's: Understand
5) By placing tariffs on imported goods, governments can increase the cost of exporting relative to
foreign direct investment and licensing.
Answer: TRUE
Explanation: By placing tariffs on imported goods, governments can increase the cost of
exporting relative to foreign direct investment and licensing.
Difficulty: 1 Easy
Bloom's: Understand
6) An oligopoly is an industry composed of a limited number of large firms.
Answer: TRUE
Explanation: An oligopoly is an industry composed of a limited number of large firms (e.g., an
industry in which four firms control 80 percent of a domestic market would be defined as an
oligopoly).
Difficulty: 1 Easy
Bloom's: Remember
2
7) Rivals rarely imitate what a firm does in an oligopoly.
Answer: FALSE
Explanation: Rivals often quickly imitate what a firm does in an oligopoly.
Difficulty: 1 Easy
Bloom's: Remember
8) John Dunning pioneered the eclectic paradigm.
Answer: TRUE
Explanation: The eclectic paradigm has been championed by the British economist John
Dunning.
Difficulty: 1 Easy
Bloom's: Remember
9) According to the pragmatic nationalistic view, the MNE is a tool for exploiting host countries to
the exclusive benefit of their capitalist-imperialist home countries.
Answer: FALSE
Explanation: According to the radical view, the MNE is a tool for exploiting host countries to the
exclusive benefit of their capitalist-imperialist home countries.
Difficulty: 2 Medium
Topic: Overview of Foreign Direct Investment
Learning Objective: 08-03 Understand how political ideology shapes a government's attitudes
toward FDI.
Bloom's: Remember
3
10) Only a few countries have adopted the free market view in its pure form.
Answer: TRUE
Explanation: Although few countries have adopted a pure free market policy stance, an
increasing number of countries are gravitating toward the free market end of the spectrum and
have liberalized their foreign investment regime.
Difficulty: 1 Easy
toward FDI.
Bloom's: Understand
11) Countries adopting a pragmatic stance pursue policies designed to maximize the national
benefits and minimize the national costs.
Answer: TRUE
Explanation: Countries adopting a pragmatic stance pursue policies designed to maximize the
national benefits and minimize the national costs. According to this view, FDI should be allowed
so long as the benefits outweigh the costs.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
12) Research supports the view that multinational firms often transfer significant technology when
they invest in a foreign country.
Answer: TRUE
Explanation: Research supports the view that multinational firms often transfer significant
technology when they invest in a foreign country.
Difficulty: 1 Easy
Topic: Benefits and Challenges of Foreign Direct Investment
Learning Objective: 08-04 Describe the benefits and costs of FDI to home and host countries.
Bloom's: Remember
4
13) Direct effects of FDI arise when jobs are created in local suppliers as a result of the FDI and
when jobs are created because of increased local spending by employees of the MNE.
Answer: FALSE
Explanation: Indirect effects arise when jobs are created in local suppliers as a result of the
investment and when jobs are created because of increased local spending by employees of the
MNE.
Bloom's: Understand
14) Governments normally are concerned when their country is running a surplus on the current
account of their balance of payments.
Answer: FALSE
Explanation: Governments normally are concerned when their country is running a deficit on the
current account of their balance of payments.
Difficulty: 1 Easy
Bloom's: Understand
15) In general, FDI in the form of greenfield investments should increase competition.
Answer: TRUE
Explanation: In general, while FDI in the form of greenfield investments should increase
competition, it is less clear that this is the case when the FDI takes the form of acquisition of an
established enterprise in the host nation.
Difficulty: 1 Easy
Bloom's: Understand
5
16) For the home country, the current account of the balance of payments improves if the purpose
of the foreign investment is to serve the home market from a low-cost production location.
Answer: FALSE
Explanation: The current account of the balance of payments suffers if the purpose of the foreign
investment is to serve the home market from a low-cost production location.
Bloom's: Understand
17) Offshore production refers to FDI undertaken to serve the host market.
Answer: FALSE
Explanation: The term offshore production refers to FDI undertaken to serve the home market.
Difficulty: 1 Easy
Bloom's: Remember
18) The WTO supports the promotion of international trade in services.
Answer: TRUE
Explanation: The WTO embraces the promotion of international trade in services.
Difficulty: 1 Easy
Topic: Government Intervention in Foreign Direct Investment
Learning Objective: 08-05 Explain the range of policy instruments that governments use to
influence FDI.
Bloom's: Remember
6
19) One way countries have encouraged firms to undertake FDI is through double taxation.
Answer: FALSE
Explanation: To encourage domestic firms to undertake FDI, many countries have eliminated
double taxation of foreign income (i.e., taxation of income in both the host country and the home
country).
Difficulty: 1 Easy
influence FDI.
Bloom's: Remember
20) The British advanced corporation tax system taxed British companies' foreign earnings at a
higher rate than their domestic earnings. This tax code created an incentive for British companies
to invest abroad.
Answer: FALSE
Explanation: This tax code created an incentive for British companies to invest at home in order
to help create jobs at home instead of in other nations.
Difficulty: 1 Easy
influence FDI.
Bloom's: Remember
21) Tax concessions, low-interest loans, and grants or subsidies are all incentives that governments
offer to foreign firms to invest in their countries.
Answer: TRUE
Explanation: It is common for governments to offer incentives to foreign firms to invest in their
countries. Such incentives take many forms, but the most common are tax concessions,
low-interest loans, and grants or subsidies.
Difficulty: 1 Easy
influence FDI.
Bloom's: Remember
7
22) Because licensing is more costly and more risky than FDI, other things being equal, the
theories argue that FDI is preferable to licensing.
Answer: FALSE
Explanation: This is backwards: Because FDI is more costly and more risky than licensing, other
things being equal, licensing is preferable to FDI.
Learning Objective: 08-06 Identify the implications for managers of the theory and government
policies associated with FDI.
Bloom's: Understand
23) Licensing is usually a good option for firms in high-tech industries where protecting
firm-specific expertise is of paramount importance.
Answer: FALSE
Explanation: Licensing is usually not a good option for firms in high-tech industries where
protecting firm-specific expertise is of paramount importance.
Bloom's: Understand
24) FDI occurs when a firm

A) ships its products from one country to another.
B) invests directly in facilities to produce a product in a foreign country.
C) invests in the shares of another company operating in the same country.
D) grants permission to another company in a different country to use its brand name.
Answer: B
Explanation: Foreign direct investment (FDI) occurs when a firm invests directly in facilities to
produce or market a product in a foreign country.
Difficulty: 1 Easy
the world economy.
Bloom's: Understand
8
25) Which of the following is an example of a greenfield investment?
A) A Chinese sugar maker sets up a sugar crushing facility in Cuba.
B) A Serbian automobile company purchases a Croatian component manufacturer.
C) A Finnish mobile phone manufacturer expands its production facility in Finland.
D) An Indian oil exploration company acquires an oil refining company.
Answer: A
Explanation: A greenfield investment involves the establishment of a new operation in a foreign
country.
the world economy.
Bloom's: Apply
AACSB: Reflective Thinking
26) Which of the following statements is true about the growth of foreign direct investment in the
world economy over the last few decades?
A) FDI has experienced a slower growth than world output.
B) FDI has accelerated faster than world trade growth.
C) FDI has remained the same over the past few decades.
D) FDI has dropped dramatically.
Answer: B
Explanation: The past 25 years have seen a marked increase in both the flow and stock of FDI in
the world economy. Over the past 25 years, the flow of FDI has accelerated faster than the growth
in world trade and world output.
the world economy.
Bloom's: Analyze
AACSB: Analytical Thinking
9
27) The majority of cross-border investment in the developed world is in the form of
A) hostile takeovers.
B) greenfield investments.
C) competitive investments.
D) mergers and acquisitions.
Answer: D
Explanation: The majority of cross-border investment is in the form of mergers and acquisitions
rather than greenfield investments.
Difficulty: 1 Easy
the world economy.
Bloom's: Remember
28) An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of
A) an acquisition.
B) an absolute advantage.
C) a greenfield investment.
D) a merger.
Answer: A
Explanation: This is an example of an acquisition. A greenfield investment involves the
establishment of a new operation in a foreign country.
the world economy.
Bloom's: Apply
10
29) Developing nations currently account for ________ of FDI in the form of cross-border
mergers and acquisitions.
A) well over half
B) about one-third or less
C) about 50 percent
D) the largest share
Answer: B
Explanation: FDI flows into developed nations differ markedly from those into developing
nations. In the case of developing nations, only about one-third or less of FDI is in the form of
cross-border mergers and acquisitions. Even though developed nations still account for the largest
share of FDI inflows, FDI into developing nations has increased.
Difficulty: 1 Easy
the world economy.
Bloom's: Understand
30) Since World War II, the largest source country for FDI has been
A) China.
B) Japan.
C) the United States.
D) the Netherlands.
Answer: C
Explanation: Since World War II, the United States has been the largest source country for FDI, a
position it retained during the late 1990s and early 2000s. Other important source countries include
the United Kingdom, France, Germany, the Netherlands, and Japan.
Difficulty: 1 Easy
the world economy.
Bloom's: Remember
11
31) Which of the following factors has had a positive effect on the volume of foreign trade
investments?
A) emerging social democracies
B) fluctuating current rates
C) aging demographics
D) world economy globalization
Answer: D
Explanation: The globalization of the world economy is also having a positive effect on the
volume of FDI. Many firms see the whole world as their market, and they are undertaking FDI in
an attempt to make sure they have a significant presence in many regions of the world.
the world economy.
Bloom's: Apply
32) What has made the United States an attractive target for foreign direct investment?
A) its unstable economy
B) its unfavorable political environment
C) its wealthy domestic markets
D) its closed society
Answer: C
Explanation: The United States has been an attractive target for FDI because of its large and
wealthy domestic markets, its dynamic and stable economy, its favorable political environment,
and the openness of the country to the concept of FDI.
Difficulty: 1 Easy
the world economy.
Bloom's: Understand
12
33) The stock of FDI refers to the
A) amount of FDI undertaken over a given period of time.
B) total accumulated value of foreign-owned assets at a given time.
C) flow of FDI out of a country.
D) amount of foreign direct investment made by domestic companies over a given period of time.
Answer: B
Explanation: The stock of FDI refers to the total accumulated value of foreign-owned assets at a
given time.
Difficulty: 1 Easy
the world economy.
Bloom's: Remember
34) The ________ of FDI refers to the amount of FDI undertaken over a year.
A) stock
B) net value
C) accumulated value
D) flow
Answer: D
Explanation: The flow of FDI refers to the amount of FDI undertaken over a given time period
(normally a year).
Difficulty: 1 Easy
the world economy.
Bloom's: Remember
13
35) What is the primary reason Africa has attracted FDI in recent years?
A) growth of the services sector
B) complete deregulation of markets
C) wave of privatization
D) raw material availability
Answer: D
Explanation: In recent years, Chinese enterprises have emerged as major investors in Africa,
particularly in extraction industries where they seem to be trying to assure future supplies of
valuable raw materials.
the world economy.
Bloom's: Apply
36) What primarily explains why developing nations are characterized by a lower percentage of
cross-border mergers and acquisitions compared to developed nations?
A) fewer target firms to acquire in developing nations
B) fierce opposition to mergers and acquisitions in developed nations
C) unwillingness of foreign companies to invest in developing nations
D) presence of import quotas in developing nations
Answer: A
Explanation: In the case of developing nations, only about one-third of FDI is in the form of
cross-border mergers and acquisitions. The lower percentage of mergers and acquisitions may
simply reflect the fact that there are fewer target firms to acquire in developing nations.
the world economy.
Bloom's: Apply
14
37) When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than
undertake greenfield investments?
A) Greenfield investments are characterized by reduced management control.
B) Mergers and acquisitions are preferred because most greenfield investments fail.
C) It is easier and less risky for a firm to build strategic assets than acquire similar assets.
D) Mergers and acquisitions are quicker to execute than greenfield investments.
Answer: D
Explanation: Mergers and acquisitions are quicker to execute than greenfield investments. This is
an important consideration in the modern business world where markets evolve very rapidly.
Difficulty: 3 Hard
the world economy.
Bloom's: Understand
38) ________ arises when two or more enterprises encounter each other in different regional
markets, national markets, or industries.
A) Comparative advantage
B) Multipoint competition
C) Competitive advantage
D) Economic advantage
Answer: B
Explanation: Multipoint competition arises when two or more enterprises encounter each other in
different regional markets, national markets, or industries. Economic theory suggests that firms
will try to match each other's moves in different markets to try to hold each other in check. If a firm
is successful with this strategy, the firm will ensure that a rival does not take a commanding
position in one market and then use the profits generated in that market to underwrite competitive
attacks in other markets.
Difficulty: 1 Easy
Bloom's: Understand
15
39) ________ arise(s) from using resource endowments or assets that are tied to a particular
foreign location and that a firm finds valuable to combine with its own unique assets.
A) Multipoint competition
B) The eclectic paradigm
C) Location-specific advantages
D) Outflow of FDI
Answer: C
Explanation: Location-specific advantages are advantages that arise from using resource
endowments or assets that are tied to a particular foreign location and that a firm finds valuable to
combine with its own unique assets. Natural resources such as oil and minerals, for example, are
specific to certain locations. Firms must undertake FDI to exploit such foreign resources.
Bloom's: Apply
40) ________ occurs when a firm legally allows the right to produce its product, to use its
production processes, or to use its brand name or trademark to another firm.
A) Licensing
B) Acquisition
C) Internalization
D) Merger
Answer: A
Explanation: Licensing occurs when a firm (the licensor) licenses the right to produce its product,
to use its production processes, or to use its brand name or trademark to another firm (the licensee).
In return for giving the licensee these rights, the licensor collects a royalty fee on every unit the
licensee sells. The licensor also benefits from the arrangement in that the licensee bears the cost
and risk of expanding into a foreign market.
Difficulty: 1 Easy
Bloom's: Understand
16
41) Which branch of economic theory seeks to explain why firms often prefer foreign direct
investment over licensing as a strategy for entering foreign markets?
A) internalization theory
B) product life-cycle theory
C) multipoint competition theory
D) strategic behavior theory
Answer: A
Explanation: A branch of economic theory known as internalization theory seeks to explain why
firms often prefer foreign direct investment over licensing as a strategy for entering foreign
markets.
Bloom's: Understand
42) A French wind power company gives an Indonesian company the right to produce and sell
wind turbines in return for a royalty fee on every unit sold. Which business practice is this an
example of?
A) acquisition
B) licensing
C) exporting
D) greenfield investment
Answer: B
Explanation: Licensing involves granting a foreign entity (the licensee) the right to produce and
sell the firm's product in return for a royalty fee on every unit sold.
Bloom's: Apply
17
43) When transportation costs are added to production costs, it becomes unprofitable to ship some
products over a large distance. This is particularly true of products that
A) have a low value-to-weight ratio.
B) have a high value-to-weight ratio.
C) can be produced only in one region.
D) require locally sourced raw materials.
Answer: A
Explanation: When transportation costs are added to production costs, it becomes unprofitable to
ship some products over a large distance. This is particularly true of products that have a low
value-to-weight ratio and that can be produced in almost any location.
Bloom's: Apply
44) ________ seeks to explain why firms often prefer foreign direct investment over licensing as a
strategy for entering foreign markets.
A) Knickerbocker's theory
B) Internalization theory
C) The noninterventionist theory
D) The eclectic paradigm
Answer: B
Explanation: Internalization theory seeks to explain why firms often prefer foreign direct
investment over licensing as a strategy for entering foreign markets.
Difficulty: 1 Easy
Bloom's: Understand
18
45) ________ gives a firm tight control over manufacturing, marketing, and strategy in a foreign
country that may be required to maximize its profitability.
A) Licensing
B) Internalization
C) Foreign direct investment
D) A merger
Answer: C
Explanation: Licensing does not give a firm the tight control over manufacturing, marketing, and
strategy in a foreign country that may be required to maximize its profitability.
Difficulty: 1 Easy
Bloom's: Remember
46) ________ and its extensions can help to explain imitative FDI behavior by firms in
oligopolistic industries.
A) Internalization theory
B) The eclectic paradigm
C) The noninterventionist theory
D) Knickerbocker's theory
Answer: D
Explanation: Knickerbocker's theory and its extensions can help to explain imitative FDI
behavior by firms in oligopolistic industries.
Difficulty: 1 Easy
Bloom's: Apply
19
47) Which of the following specifically reduces the viability of an exporting strategy specifically
for products with low value-to-weight ratios?
A) foreign exchange controls
B) trade barriers
C) transportation costs
D) output quality
Answer: C
Explanation: When transportation costs are added to production costs, it becomes unprofitable to
ship some products over a large distance. This is particularly true of products that have a low
value-to-weight ratio and that can be produced in almost any location.
Bloom's: Apply
48) Which of the following is a way in which governments increase the attractiveness of FDI and
licensing relative to exporting?
A) by implementing import quotas
B) by imposing FDI limits in industries
C) by increasing tax rates
D) by limiting free flow of capital
Answer: A
Explanation: By limiting imports through quotas, governments increase the attractiveness of FDI
and licensing.
Difficulty: 3 Hard
Bloom's: Apply
20
49) Identify the theory that seeks to explain why firms often prefer foreign direct investment over
licensing as a strategy for entering foreign markets.
A) internalization theory
B) product life-cycle theory
C) perfect markets theory
D) random walk theory
Answer: A
Explanation: A branch of economic theory known as internalization theory seeks to explain why
firms often prefer foreign direct investment over licensing as a strategy for entering foreign
markets (this approach is also known as the market imperfections approach).
Difficulty: 1 Easy
Bloom's: Remember
50) In which of the following situations does the internalization theory recommend FDI as
opposed to licensing?
A) when the firm has know-how that can be adequately protected by a licensing contract
B) when the firm produces products that have a low value-to-weight ratio
C) when a firm's skills and know-how are amenable to licensing
D) when the firm needs tight control over a foreign entity
Answer: D
Explanation: Licensing does not give a firm the tight control over manufacturing, marketing, and
strategy in a foreign country that may be required to maximize its profitability. When tight control
over a foreign entity is desirable, foreign direct investment is preferable to licensing.
Bloom's: Apply
21
51) Which of the following best describes an industry composed of a limited number of large
firms?
A) an oligopoly
B) a monopoly
C) an oligarchy
D) a perfectly competitive market
Answer: A
Explanation: An oligopoly is an industry composed of a limited number of large firms (e.g., an
industry in which four firms control 80 percent of a domestic market would be defined as an
oligopoly).
Difficulty: 1 Easy
Bloom's: Remember
52) Which of the following is a direct consequence of the interdependence between firms in an
oligopoly?
A) increased regulation
B) increased consumer welfare
C) imitative behavior
D) longer product life cycles
Answer: C
Explanation: The interdependence between firms in an oligopoly leads to imitative behavior;
rivals often quickly imitate what a firm does in an oligopoly.
Difficulty: 1 Easy
Bloom's: Understand
22
53) Which of the following observations concerning Knickerbocker's theory is true?
A) It does not explain imitative FDI behavior by firms in oligopolistic industries.
B) Economists favor this theory as an explanation for FDI compared to the internalization theory.
C) It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding
abroad.
D) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to
export or license.
Answer: D
Explanation: Although Knickerbocker's theory and its extensions can help to explain imitative
FDI behavior by firms in oligopolistic industries, it does not explain why the first firm in an
oligopoly decides to undertake FDI rather than to export or license.
Difficulty: 3 Hard
Bloom's: Analyze
54) ________ arises when two or more enterprises encounter each other in different regional
markets, national markets, or industries.
A) Horizontal integration
B) Multipoint competition
C) An oligopoly
D) Vertical integration
Answer: B
different regional markets, national markets, or industries.
Difficulty: 1 Easy
Bloom's: Remember
23
55) According to Knickerbocker's theory
A) when a firm has valuable know-how that cannot be adequately protected by a licensing
contract, it engages in FDI.
B) when a firm's skills and know-how are not amenable to licensing, it usually prefers the FDI
route.
C) by placing tariffs on imported goods, governments indirectly increase the cost of exporting
relative to foreign direct investment and licensing.
D) when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in
the industry will be compelled to make similar investments.
Answer: D
Explanation: Imitative behavior can take many forms in an oligopoly. One firm raises prices, the
others follow; one expands into a foreign market and the rivals imitate lest they be left at a
disadvantage in the future.
Bloom's: Understand
56) What is the term that describes when two or more enterprises encounter each other in different
regional markets, national markets, or industries?
A) multipoint competition
B) monopoly
C) location-specific competition
D) oligopoly
Answer: A
different regional markets, national markets, or industries.
Difficulty: 1 Easy
Bloom's: Remember
24
57) Which of the following is a major drawback of using Knickerbocker's theory in explaining
FDI?
A) It ignores the fact that firms invest in a foreign country when demand in that country will
support local production.
B) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to
export or license.
C) It fails to identify when it is profitable to invest abroad.
D) It ignores the fact that licensing as an entry strategy has its limitations.
Answer: B
Explanation: Although Knickerbocker's theory and its extensions can help explain imitative FDI
behavior by firms in oligopolistic industries, it does not explain why the first firm in an oligopoly
decides to undertake FDI rather than to export or license.
Bloom's: Apply
58) The ________ suggests that a firm will establish production facilities where foreign assets or
resource endowments that are important to the firm are located.
A) product life-cycle theory
B) internalization theory
C) multipoint competition theory
D) eclectic paradigm
Answer: D
Explanation: According to the eclectic paradigm, it requires the firm to establish production
facilities where those foreign assets or resource endowments are located.
Difficulty: 1 Easy
Bloom's: Remember
25
59) Advantages that arise from using resource endowments or assets that are tied to a particular
place and that a firm finds valuable to combine with its own unique assets are known as
A) location-specific advantages.
B) capital-specific advantages.
C) absolute advantages.
D) production factor advantages.
Answer: A
Explanation: By location-specific advantages, John Dunning means the advantages that arise
from utilizing resource endowments or assets that are tied to a particular foreign location and that a
firm finds valuable to combine with its own unique assets.
Difficulty: 1 Easy
Bloom's: Remember
60) According to the ________ view of FDI, multinational enterprises (MNE) extract profits from
the host country and take them to their home country, giving nothing of value to the host country in
exchange.
A) imperialist
B) conservative
C) free market
D) radical
Answer: D
Explanation: Radical writers see the MNE as a tool for exploiting host countries to the exclusive
benefit of their capitalist-imperialist home countries. They argue that MNEs extract profits from
the host country and take them to their home country, giving nothing of value to the host country in
exchange.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
26
61) Which view of FDI traces its roots to classical economics and the international trade theories
of Adam Smith and David Ricardo?
A) imperialist
B) conservative
C) free market
D) radical
Answer: C
Explanation: The free market view traces its roots to classical economics and the international
trade theories of Adam Smith and David Ricardo. The intellectual case for this view has been
strengthened by the internalization explanation of FDI.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
62) Which political view allows FDI so long as the benefits outweigh the costs?
A) the traditional view
B) the pragmatic nationalist view
C) the radical view
D) the free market view
Answer: B
Explanation: The pragmatic nationalist view is that FDI has both benefits and costs. According to
this view, FDI should be allowed so long as the benefits outweigh the costs.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
27
63) A country rejects FDI proposals in certain industries. It does so because the tangible
advantages of such investments are lesser than potential costs like loss of employment and
reduction of overall well-being. However, it aggressively pursues inviting foreign investments in
sectors like infrastructure, education, and health care because of the benefits that accrue with them.
Which political view of FDI is discussed in this example?
A) the pure market view
B) the free market view
C) the radical view
D) the pragmatic nationalist view
Answer: D
toward FDI.
Bloom's: Analyze
64) The country of Manystan has adopted neither a radical policy nor a free market policy, but
rather one that posits that FDI has both benefits and costs. This is best described as
A) pragmatic nationalism.
B) postmodernism.
C) the free market view.
D) the noninterventionist principle.
Answer: A
Explanation: Countries that have adopted neither a radical policy nor a free market policy toward
FDI have a policy that can best be described as pragmatic nationalism. The pragmatic nationalist
view is that FDI has both benefits and costs.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
28
65) ________ traces its roots to Marxist political and economic theory.
A) The radical view
B) Pragmatic nationalism
C) The free market view
D) The noninterventionist principle
Answer: A
Explanation: The radical view traces its roots to Marxist political and economic theory.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
66) ________ argues that FDI is a benefit to both the source country and the host country.
A) Pragmatic nationalism
B) The free market view
C) The noninterventionist principle
D) The radical view
Answer: B
Explanation: The free market view argues that international production should be distributed
among countries according to the theory of comparative advantage.
Difficulty: 1 Easy
toward FDI.
Bloom's: Understand
29
67) The pragmatic nationalist view highlights ________ of FDI.
A) only the benefits
B) only the costs
C) both the benefits and costs
D) neither the benefits nor the costs
Answer: C
toward FDI.
Bloom's: Apply
68) An aspect of ________ is the tendency to aggressively court FDI believed to be in the national
interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
A) the radical view
B) the noninterventionist principle
C) the free market view
D) pragmatic nationalism
Answer: D
Explanation: An aspect of pragmatic nationalism is the tendency to aggressively court FDI
believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the
form of tax breaks or grants.
toward FDI.
Bloom's: Apply
30
69) Recent years have seen a ________ in the number of countries that adhere to a radical ideology
regarding FDI.
A) marked decline
B) slight decline
C) marked increase
D) slight increase
Answer: A
Explanation: Recent years have seen a marked decline in the number of countries that adhere to a
radical ideology regarding FDI.
Difficulty: 1 Easy
toward FDI.
Bloom's: Remember
70) The free market view argues that international production should be distributed among
countries according to the
A) eclectic paradigm.
B) theory of competitive advantage.
C) new trade theory.
D) theory of comparative advantage.
Answer: D
Explanation: The intellectual case for the free market view has been strengthened by the
internalization explanation of FDI. The free market view argues that international production
should be distributed among countries according to the theory of comparative advantage.
Countries should specialize in the production of those goods and services that they can produce
most efficiently. Within this framework, the MNE is an instrument for dispersing the production of
goods and services to the most efficient locations around the globe. Viewed this way, FDI by the
MNE increases the overall efficiency of the world economy.
toward FDI.
Bloom's: Apply
31
71) According to pragmatic nationalist view, FDI should be allowed so long as
A) the benefits outweigh the costs.
B) they do not aggressively court domestic firms.
C) the costs outweigh the benefits.
D) the MNE does not seek tax breaks or grants.
Answer: A
Explanation: The pragmatic nationalist view is that FDI has both benefits and costs. FDI can
benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a
cost.
According to this view, FDI should be allowed so long as the benefits outweigh the costs. Another
aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the
national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or
grants.
toward FDI.
Bloom's: Apply
72) Why is it said that not all the new jobs created by FDI represent net additions in employment?
A) because of the uncertainty of the overall economic environment
B) because most of the job creation is indirect in nature
C) because jobs created by an investment may be offset by the jobs lost in domestic companies
D) because the unemployment rate more or less remains constant over the short term
Answer: C
Explanation: Cynics argue that not all the "new jobs" created by FDI represent net additions in
employment. In the case of FDI by Japanese auto companies in the United States, some argue that
the jobs created by this investment have been more than offset by the jobs lost in U.S.-owned auto
companies, which have lost market share to their Japanese competitors.
Difficulty: 3 Hard
Bloom's: Understand
32
73) When a company brings capital and/or technology to a host country, the host country benefits
from the
A) political effect of FDI.
B) resource-transfer effect of FDI.
C) balance-of-payments effect of FDI.
D) bandwagon effect of FDI.
Answer: B
Explanation: Foreign direct investment can make a positive contribution to a host economy by
supplying capital, technology, and management resources that would otherwise not be available
and thus boost that country's economic growth rate.
Bloom's: Understand
74) A country's ________ keep track of its payments to and its receipts from other countries.
A) federal payments ledgers
B) concurrent accounts
C) checks-and-balances accounts
D) balance-of-payments accounts
Answer: D
Explanation: A country's balance-of-payments accounts track both its payments to and its
receipts from other countries.
Difficulty: 1 Easy
Bloom's: Remember
33
75) Host country citizens that are employed by an MNE following an FDI are an example of
A) an internality.
B) a direct effect.
C) an externality.
D) an indirect effect.
Answer: B
Explanation: Direct effects of FDI arise when a foreign MNE employs a number of host-country
citizens.
Bloom's: Apply
76) A country's ________ accounts keep track of both its payments to and its receipts from other
countries.
A) current
B) offshore
C) balance-of-payments
D) currency
Answer: C
Explanation: A country's balance-of-payments accounts track both its payments to and its
receipts from other countries.
Difficulty: 1 Easy
Bloom's: Understand
34
77) If the FDI is a substitute for imports of goods or services, the effect can be to improve the
________ of the host country's balance of payments.
A) offshore account
B) currency account
C) market imperfections
D) current account
Answer: D
Explanation: If the FDI is a substitute for imports of goods or services, the effect can be to
improve the current account of the host country's balance of payments.
Bloom's: Apply
78) FDI can benefit the home country's ________ if the foreign subsidiary creates demands for
home-country exports of capital equipment, intermediate goods, complementary products, and the
like.
A) balance of payments
B) oligopolistic industry
C) current accounts
D) licensing endeavors
Answer: A
Explanation: FDI can benefit the home country's balance of payments if the foreign subsidiary
creates demands for home-country exports of capital equipment, intermediate goods,
complementary products, and the like.
Bloom's: Apply
35
79) Which of the following arises when a country is importing more goods and services than it is
exporting?
A) current account surplus
B) trade deficit
C) trade surplus
D) trade balance
Answer: B
Explanation: A current account deficit, or trade deficit as it is often called, arises when a country
is importing more goods and services than it is exporting.
Difficulty: 1 Easy
Bloom's: Remember
80) In which of the following situations would FDI improve the current account of the host
country's balance of payments?
A) if the foreign subsidiary imports a substantial number of its inputs from abroad
B) if the FDI reduces existing employment opportunities
C) if the FDI is a substitute for imports of goods or services
D) if the FDI results in substitution of products produced domestically
Answer: C
Explanation: If the FDI is a substitute for imports of goods or services, the effect can be to
improve the current account of the host country's balance of payments. Much of the FDI by
Japanese automobile companies in the United States and Europe, for example, can be seen as
substituting for imports from Japan.
Bloom's: Apply
36
81) In which way can the source country's balance of payments benefit from FDI made in a foreign
country?
A) from cash outflow during the initial investment to finance the FDI
B) if the purpose of the foreign investment is to serve the home market from a low-cost production
location
C) from the inward flow of foreign earnings
D) if FDI is a substitute for direct exports
Answer: C
Explanation: FDI can benefit the home (source) country's balance of payments from the inward
flow of foreign earnings.
Bloom's: Apply
82) How is the adverse effect of the balance of payments for the home country due to FDI usually
offset?
A) by increased imports to the home country as a result of the FDI
B) by the subsequent inflow of foreign earnings
C) by substituting direct exports made earlier from the home country
D) by further investments usually made to expand foreign operations
Answer: B
Explanation: For the home country, the balance of payments suffers from the initial capital
outflow required to finance the FDI. This effect, however, is usually more than offset by the
subsequent inflow of foreign earnings.
Bloom's: Apply
37
83) FDI undertaken to serve the home market is known as
A) outsourcing.
B) FDI substitution.
C) offshore production.
D) home market FDI.
Answer: C
Explanation: The term offshore production refers to FDI undertaken to serve the home market.
Difficulty: 1 Easy
Bloom's: Remember
84) How can FDI undertaken to serve the home market stimulate economic growth in the home
country?
A) by freeing home-country resources to concentrate on activities where the home country has a
comparative advantage
B) by importing more goods and services than it is exporting
C) by circumventing trade barriers that may have prevented direct exports in the past
D) by reducing demand for home-country exports of capital equipment, intermediate goods, and
complementary products
Answer: A
Explanation: Far from reducing home-country employment, such FDI may actually stimulate
economic growth (and hence employment) in the home country by freeing home-country
resources to concentrate on activities where the home country has a comparative advantage.
Difficulty: 3 Hard
Bloom's: Apply
38
85) What is double taxation in the context of FDI?
A) taxation at twice the normal rate for foreign companies
B) taxing the producers as well as suppliers
C) taxation of income in both home and host country
D) taxation of both income as well as dividends paid
Answer: C
Explanation: As an incentive to encourage domestic firms to undertake FDI, many countries
have eliminated double taxation of foreign income (i.e., taxation of income in both the host
country and the home country).
influence FDI.
Bloom's: Remember
86) Through their choice of policies, home countries can both encourage and restrict FDI by local
firms. Policies designed to encourage outward FDI include which of the following?
A) tax rebates
B) political pressure
C) expropriation
D) domestic risk insurance
Answer: B
Explanation: Through their choice of policies, home countries can both encourage and restrict
FDI by local firms. Policies designed to encourage outward FDI include: foreign risk insurance,
capital assistance, tax incentives, and political pressure.
influence FDI.
Bloom's: Apply
39
87) The two most common methods of restricting inward FDI are ownership restraints and
A) resource endowments.
B) performance requirements.
C) national sovereignty.
D) incentives.
Answer: B
Explanation: Host governments use a wide range of controls to restrict FDI in one way or
another. The two most common are ownership restraints and performance requirements.
Difficulty: 1 Easy
influence FDI.
Bloom's: Remember
88) Which of the following is a home-country policy aimed at restricting outward FDI flow?
A) taxing domestic companies' foreign earnings at a higher rate than their domestic earnings
B) implementation of government-backed insurance programs to cover major types of foreign
investment risk
C) eliminating double taxation of foreign income
D) persuading host countries to relax their restrictions on inbound FDI
Answer: A
Explanation: Countries have occasionally manipulated tax rules to try to encourage their firms to
invest at home. The objective behind such policies is to create jobs at home rather than in other
nations.
influence FDI.
Bloom's: Apply
40
89) ________ is essentially the service-industry version of licensing, although it normally involves
much longer-term commitments.
A) Franchising
B) Subsidizing
C) Greenfield investment
D) Patenting
Answer: A
Explanation: Franchising is essentially the service-industry version of licensing, although it
normally involves much longer-term commitments than licensing.
Difficulty: 1 Easy
Bloom's: Remember
90) From the perspective of a firm negotiating the terms of an investment with a host government,
the firm's bargaining power is high when the
A) firm has a short time in which to complete the negotiations.
B) host government places a high value on what the firm has to offer.
C) number of comparable alternatives open to the firm is low.
D) host government does not places a high value on the firm's offering.
Answer: B
Explanation: From the perspective of a firm negotiating the terms of an investment with a host
government, the firm's bargaining power is high when the host government places a high value on
what the firm has to offer, the number of comparable alternatives open to the firm is greater, and
the firm has a long time in which to complete the negotiations.
Bloom's: Apply
41
91) The ________ and Knickerbocker's theory of FDI tend to be less useful from a business
perspective because they are descriptive rather than analytical.
A) noninterventionist theory
B) internalization theory
C) eclectic paradigm
D) product life-cycle theory
Answer: D
Explanation: The product life-cycle theory and Knickerbocker's theory of FDI tend to be less
useful from a business perspective because they are descriptive rather than analytical.
Difficulty: 1 Easy
Bloom's: Understand
92) As transportation costs or trade barriers increase, exporting becomes unprofitable, and the
choice is between FDI and
A) subsidies.
B) incentives.
C) licensing.
D) resource endowments.
Answer: C
Explanation: As transportation costs or trade barriers increase, exporting becomes unprofitable,
and the choice is between FDI and licensing.
Difficulty: 1 Easy
Bloom's: Understand
42
93) Licensing would be a good option for firms in which of the following industries?
A) It would be a good option in high-technology industries in which protecting firm-specific
expertise is of paramount importance.
B) It would be a good option in global oligopolies, in which competitive interdependence requires
that multinational firms maintain tight control over foreign operations.
C) It would be a good option in industries in which intense cost pressures require that multinational
firms maintain tight control over foreign operations.
D) It would be a good option in fragmented, low-technology industries in which globally dispersed
manufacturing is not an option.
Answer: D
Explanation: Licensing tends to be more common, and more profitable, in fragmented,
low-technology industries in which globally dispersed manufacturing is not an option. A good
example is the fast food industry.
Bloom's: Analyze
94) Discuss the two main forms of FDI.
Answer: FDI takes on two main forms. The first is a greenfield investment, which involves the
establishment of a new operation in a foreign country. The second involves acquiring or merging
with an existing firm in the foreign country. Acquisitions can be a minority (where the foreign firm
takes a 10 percent to 49 percent interest in the firm's voting stock), majority (foreign interest of 50
percent to 99 percent), or full outright stake (foreign interest of 100 percent). The majority of
cross-border investment is in the form of mergers and acquisitions rather than greenfield
investments.
Difficulty: 3 Hard
the world economy.
Bloom's: Remember
43
95) Discuss the trends in FDI over the past 30 years. Be sure to differentiate between the stock of
FDI and the flow of FDI.
Answer: The flow of FDI refers to the amount of FDI undertaken over a given period, while the
stock of FDI refers to the total accumulated value of foreign-owned assets at a given time. The past
30 years have seen a marked increase in both the flow and the stock of FDI in the world economy.
Over this period, the flow of FDI accelerated faster than the growth in world trade and world
output.
Difficulty: 3 Hard
the world economy.
Bloom's: Analyze
96) Discuss the reasons for the growth in FDI over the past 30 years.
Answer: FDI has grown more rapidly than world trade and world output for several reasons.
First, despite the general decline in trade barriers over the past 30 years, firms still fear
protectionist pressures. Executives see FDI as a way of circumventing future trade barriers. Given
the rising pressures for protectionism associated with the election of Donald Trump as president in
the United States and the decision by the British to leave the European Union, this seems likely to
continue for some time. Second, much of the increase in FDI has been driven by the political and
economic changes that have been occurring in many of the world's developing nations. Finally, the
globalization of the world economy is also having a positive impact on the volume of FDI as many
firms now see the whole world as their market.
Difficulty: 3 Hard
the world economy.
Bloom's: Understand
44
97) What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is
a firm more likely to choose? Explain your answer.
Answer: FDI can take the form of a greenfield investment in a new facility or an acquisition of or
a merger with an existing local firm. Research shows that most FDI takes the form of mergers and
acquisitions rather than greenfield investments. Mergers and acquisitions are more popular for
three reasons. First, mergers and acquisitions are quicker to execute than greenfield investments.
This is an important consideration in the modern business world where markets evolve very
rapidly. Many firms apparently believe that if they do not acquire a desirable target firm, then their
global rivals will. Second, foreign firms are acquired because those firms have valuable strategic
assets. Third, firms make acquisitions because they believe they can increase the efficiency of the
acquired firm by transferring capital, technology, or management skills.
Difficulty: 3 Hard
the world economy.
Bloom's: Analyze
98) Discuss why firms selling products with low value-to-weight ratios choose FDI over
exporting.
Answer: Products with low value-to-weight ratios such as soft drinks or cement are frequently
produced in the market where they are consumed. When transportation costs are added to
production costs, it becomes unprofitable to shift such products over a long distance. For firms that
can produce low value-to-weight products at almost any location, the attractiveness of exporting
decreases and FDI or licensing becomes more appealing.
Difficulty: 3 Hard
Bloom's: Understand
45
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Fig. 1
Diagram of the Electrical Connections of a Controller to a Two-Pole Series
Motor
Supposing the cylinder to be rotated to the position marked O, the

circuit may be traced from the positive terminal of the battery U, as
follows: To contact spring E, to strip of brass L, to strip of brass M, to
contact spring F, through the field windings VV, to contact spring D,
to strip of brass K, to strip of brass J, to contact spring C, through
resistance W and Y, to armature Z, through armature to the negative
terminal of the battery. Moving the cylinder to the position P merely
cuts out the resistance W, and to the position Q, cuts out the
remaining resistance Y. The direction of the current through the
armature and series field, for all positions of the cylinder to the left, is
indicated by the full-line arrows. Moving the controller to the
positions marked R, S, and T, will result in the same changes in
circuit connections, as in the previous case, except the direction of
the current in the series field windings will be reversed.
Fig. 2
Upper-End View of the Controller, Showing the Manner of Attaching the
Springs
The construction of the controller may be carried out as follows:

Obtain a cylindrical piece of wood, 1³⁄₄ in. in diameter and 3¹⁄₈ in.
long, preferably hard wood. Turn one end of this cylinder down to a
diameter of ¹⁄₂ in., and drill a ¹⁄₄-in. hole through its center from end to
end. Divide the circumference of the small-diameter portion into eight
equal parts and drive a small nail into the cylinder at each division
point, the nail being placed in the center of the surface lengthwise
and perpendicular to the axis of the cylinder. Cut off all the nail
heads so that the outer ends of the nails extend even with the
surface of the outer, or large-size, cylinder. Divide the large part into
eight equal parts so that the division points will be midway between
the ends of the nails, and draw lines the full length of the cylinder on
these points. Divide the cylinder lengthwise into seven equal parts
and draw a line around it at each division point. Cut some ¹⁄₈-in.
strips from thin sheet brass and mount them on the cylinder to
correspond to those shown in Fig. 1. Any one of the vertical division
lines drawn on the cylinder may be taken as the neutral point. The
pieces may be mounted by bending the ends over and sharpening
them so that they can be driven into the wood. The various strips of
brass should be connected electrically, as shown by the heavy lines
in Fig. 1, but these connections must all be made so that they will not
extend beyond the outer surface of the strips of brass.
A small rectangular frame is made, and the cylinder is mounted in
a vertical position in it by means of a rod passing down through a
hole in the top of the rectangle, through the hole in the cylinder and
partly through the bottom of the rectangle. The upper part of the rod
may be bent so as to form a handle. The rod must be fastened to the
cylinder in some convenient way.
Make six flat springs similar to the one shown at A, Fig. 2, and
mount them on the inside of the rectangle so that they will
correspond in their vertical positions to the strips of brass on the
cylinder. Six small binding posts mounted on the outside of the box
and connected to these springs serve to make the external
connections, and they should be marked so that they may be easily
identified.
A flat spring, ¹⁄₄ in. wide, is made similar to the one shown at B,
Fig. 2. Mount this spring on the inside of the rectangle so it will mesh
with the ends of the nails in the small part of the cylinder. The action
of this spring is to make the cylinder stop at definite positions. The
top of the case should be marked so that the position of the handle
will indicate the position of the cylinder. Stops should also be
provided so that the cylinder case cannot be turned all the way
around.
Miniature Push Buttons
A very neat and workmanlike push button may be made in the

following manner: Procure an unused tan-shoe eyelet with an
opening about ³⁄₁₆ in. in diameter, and at the proper point drill a hole
into the board in which the button is to be set. Force the eyelet in
flush, using a little shellac to hold it in tightly. For the button proper,
polish off and round one end of a piece of brass rod of a diameter
that will move freely up and down in the eyelet. Solder a small piece
of sheet brass across the lower end to keep it from coming out, then
adjust and fasten on the two contact pieces, all as indicated in the
sketch. The larger piece should be quite springy so as to bring the
button back each time. The connections may be made by slipping
the wires under the heads of the two wood screws that hold the
contact pieces in place.
As every experimenter knows, it is almost impossible to drill a hole
in the varnished base of an instrument without leaving a raw edge.
Under such circumstances, when it is desired to make an opening
for conducting cords, and the like, simply drill a hole with an ordinary
drill and then set in a small shoe eyelet, which immediately presents
a very finished appearance.
¶Vaseline, with a little powdered gum camphor added and heated

over a slow fire, makes an excellent rust preventive for tools.
A Quickly Made Toy Electric Motor
The Motor is Constructed of Pieces of Tin, a Nail, and Some Wood Blocks
The illustration shows a small electric motor of such simple

construction that it can be easily made from odds and ends to be
found in any amateur workshop. Cut six strips, ¹⁄₂ in. wide and 3¹⁄₂ in.
long, from an old tin can, and bend them together into a U-shape.
This forms the magnet A. The outside piece should be a trifle longer
than the others so that its ends can be turned over the other ends to
keep them all in place. Screw this down on a small wood base. At
one side of the wood base, fix an upright, B, and on top, a light wood
bracket, C, to take the upper bearing of the motor. The shaft D is
simply a wire nail with the head filed off and filed to a point. Drive it
through a 1¹⁄₂-in. length of the same kind of material as used for the
magnet. This forms the rotating armature E.
Make a slight indentation with a center punch, or strong nail,
exactly in the center of the base portion of the magnet to take the
lower end of the shaft. For the upper bearing file the end of a brass
screw off flat and make a similar indentation with a center punch, or
by a few turns of a small drill. This screw should be adjusted in the
bracket until the shaft rotates freely with the armature just clearing
the tips of the magnet. Wind about 40 turns of fairly thin cotton-
covered copper wire—No. 24 or 36 gauge is suitable—around each
limb of the magnet, first covering the latter with paper, to prevent the
possibility of short-circuiting. The windings should be in opposite
directions so that the connecting piece of the wire from one coil to
the other passes across diagonally as shown in the illustration.
The brush F is formed by doubling up one of the free ends of the
windings after removing the cotton covering and fixing it firmly with
two screws to the side of the upright. After attaching, it should be
bent until the outer end bears lightly on the shaft. Remove the shaft
and at the point where the brush touched, file two flat surfaces on
opposite sides of the nail in a direction at right angles to the
longitudinal center line of the armature. On replacing the shaft the
brush should be adjusted so that it makes contact twice in a
revolution and remains clear at the flat portions. Connect up to a
battery, one wire to the screw at the top of the motor and the other
end to the open end of the windings. Give the armature a start and it
will run at a terrific speed.—Contributed by Morris G. Miller, New
Rochelle, N. Y.
Gauge for Woodwork
A convenient gauge can be quickly made by using a block of wood

and an ordinary nail, or several nails for different widths can be
placed in one block. Drive the nails straight into the block until the
distance between the head and block is the required distance to be
gauged. The rim of the nail head makes the mark as the block is
drawn over the wood surface—Contributed by E. P. Haldeman,
Balboa, Canal Zone.
A Homemade Ammeter
By JOHN D. ADAMS
Where a high degree of accuracy is neither desired nor necessary,

a very satisfactory ammeter may be made at the cost of a few
cents, and without using hairsprings, permanent magnets, or other
articles usually not at hand.
The actuating device consists of a small coil of coarse, insulated
wire, with a bundle of soft-iron wires for a core, which attracts a
curved, soft-iron, wedge-shaped armature. The moving system is so
balanced that the armature will hang as illustrated when no current is
passing. On account of its shape, the higher the armature rises, the
more iron it presents to the influence of the magnet, and, on the
other hand, the greater will be the effect of gravity. The advantage of
this type of control is the elimination of the irregular readings of the
scale, due to the law of inverse squares, that usually follow when
any method depending upon a variable distance is used. Further, the
readings can be had as desired by altering the taper of the armature,
its thickness, or its distance from the magnet, and also by adding a
small weight of nonmagnetic material at the bottom. As most
commercial circuits supply alternating current, the friction of the
bearings does not affect the readings, since the alternations set up a
decided vibration in the entire moving system, thus eliminating static
friction.
A Very Satisfactory Ammeter for Use Where Accuracy is Not Desired or

Necessary
In view of the variations above referred to, it will be evident that it

is not very essential of what dimensions the apparatus is made. The
instrument that I use has a base measuring 2¹⁄₂ in. by 5 in. The coil
is built on a tube of glued paper, and contains about 15 ft. of No. 16
gauge wire. The terminals consist of the brass bolts taken from
discarded dry cells. A steel sewing needle serves as a shaft, and a
piece of wire for the pointer. The various joints are made with soft
solder, and suitable stops are provided to keep the armature from
shifting laterally. In calibrating, a blank scale should be glued in
position and as many 55-watt lamps as possible arranged so that
they can be placed in the circuit, one at a time. On a 110-volt line,
each lamp added will mark a half-ampere point. If a sufficient
number of lamps to carry the scale high enough cannot be secured
temporarily, a resistance of some 20 or 30 ohms should be placed in
the circuit without any lamps. Note the reading in amperes on the
scale thus far constructed, and then begin adding the lamps again,
making a mark on the scale as each lamp is added. In this manner a
scale may be built up sufficiently accurate for all practical purposes.
If two identical coils are made in place of one, the additional coil
can be placed in parallel with the instrument as a shunt, thus
doubling its capacity and making it necessary, of course, to multiply
all readings by two.
Footstool
Footstool in Mission Finish with a Leather Top
The material necessary for the footstool shown in the illustration is

as follows:
2 end pieces, 1 by 10 by 15 in.
3 cross braces, 1 by 4 by 12 in.
2 end braces, ⁷⁄₈ by 4 by 8 in.
1 top board, ¹⁄₂ by 10 by 14 in.
1 piece of leather, 11 by 16 in.
Round-head wood screws and nails.
The two end pieces should be marked to a suitable pattern, and
may be cut out with a scroll or coping saw, or, if these are not
available, with a keyhole saw. The center opening should first be
bored at one end and then cut out with the saw. The three long
braces should be accurately squared and finished at the ends; the
rigidity of the stool depending on this work. The seat consists of a
box form with the open side down. The top is a ¹⁄₂-in. board, 8 in.
wide by 12 in. long; the sides are formed by two of the long braces,
and the ends are the short braces. This box is securely put together
with nails, and then screwed in position with round-head wood
screws so as to be flush with the top edge of the end pieces. The
lower brace is secured in place with screws. In putting on the leather
top, ¹⁄₂ in. should be turned under at each end, and 1¹⁄₂ in. brought
down on each side. This will provide sufficient looseness to pad the
seat properly. Large round-headed brass nails can be used,
producing a neat appearance. The stool is then ready for a suitable
stain or finish.—Contributed by Stanley B. Furbeck.
Stopper for a Bunghole
While we were filling our barrels at the cider mill it was discovered
that one barrel had no stopper. This did not bother the cider-mill
man, who took up a sound apple of about the dimensions or
diameter of the bunghole and squeezed it in, tight as a cork, then
shaved it off flush with the barrel staves. We started Home and rolled
it around a great deal with the other barrels, yet it held as tightly as
any wood stopper.—Contributed by A. A. Kelly, Frazer, Pa.
¶An open umbrella placed on the floor upside down makes an

excellent receptacle for catching dirt and plastering when installing
electric fixtures.
A Woven-Reed Footstool
By CHARLES M. MILLER
[The various materials referred to in this article by number or size were

described in detail in an article on “A Reed Basket,” in the Boy Mechanic,
Book 2, page 257.]
R eed furniture has become very popular within the last few years,
and the newer designs and methods have been so attractive as
to place this constructive effort among the handicraft series of
modern art. It is possible so to analyze, simplify, and illustrate this
work as to make it feasible for amateurs, and at the same time there
are possibilities which involve problems that may try the ability of the
skilled workman. In other words, there are possibilities of progress in
this kind of furniture making. There are places where careful weaving
is the principal aim; again particular attention will be given to corners,
or, perhaps, a nicety of modeling will be found necessary to bring out
the proper curves involved.
Each piece of reed furniture has a framework, usually of dowels,
but it may also be made of boards in such models as small tables,
dressers, bedsteads, chests, etc. The board construction is more
often covered with flat reed. In footstools there are both kinds of
framework. The illustrations show the same parts marked with the
same letters throughout the series of sketches.
The Framework of the Stool is Made of Large Dowels, Then Covered with
Windings of Reed and a Woven Reed Top and Apron
The framework of the stool is shown in Fig. 1, in which the rails

and posts are made of dowels, ³⁄₄ in. in diameter, and the braces of
dowels, ⁵⁄₈ in. in diameter. It will be noticed that the posts extend to
the top of the frame for strength in this manner of construction. If the
rails rested on top of the post S, the nails would have to be driven
into the end grain of the wood, which makes the strength depend
entirely on the holding power of the nail in this position, as there is
no binding of the upper part to the posts in the weaving. With the
post extending to the top, the nail passes through the upper part of
the post and into the end grain of the rails, and the rails are bound
together horizontally by the weaving.
The material for the frame consists of the following dowel stock:
two pieces for rails, ³⁄₄ in. by 14 in. long; two pieces for rails, ³⁄₄ in. by
9 in. long; four posts, ³⁄₄ in. by 7 in. long, and two braces, ⁵⁄₈ in. by 17
in. long. These pieces are shown in Fig. 2. If notches are cut with a
small saw, a coping saw preferred, in the ends of each rail and in the
braces, as shown in Fig. 3, they will fit to the posts better and make
a stronger joint. While different makers use a finishing nail; a barbed
or corrugated, nail; or a cemented, or glue-coated, nail, I find the
best to be an ordinary 4-penny nail, which answers the purpose well.
Do not drive the nail through the posts without first drilling a hole with
a ¹⁄₁₆-in. drill. A small hand or breast drill will be needed for this work.
Before nailing the frame together, the holes for the spokes in
weaving should be drilled in the rails. The spokes may be No. 4 and
the weavers No. 3 reed. The No. 4 reed requires a ¹⁄₈-in. hole. The
hole for the top and end side spokes may be combined, as shown in
Fig. 4. The dotted lines show the vertical and horizontal diameters,
and E the outside and F the inside of the rail, one hole being
represented as sawed in two. The spokes for the top extend down
and out at the ends, and each may be of one piece, 32 in. long. As
there are no spokes at the top extending to the side pieces, short
spokes must be inserted at the right time for the side weaving. The
location of the holes in the side rails is shown in Fig. 2. The holes in
the side rails may be drilled straight in the wood.
The pieces may now be nailed together to form the frame, as
shown in Fig. 1. If the top of the side rails A are set about ¹⁄₁₆ in.
below the tops of the posts, the weaving will be almost level, as the
winding reed is thinner than the round reed. The braces D are halved
at the center, on a slant, to bring their upper surfaces on a level
when they are in place. The length of 17 in., as given in the material
list, is not accurate, as sufficient length is given to allow the ends to
be cut, in fitting them in place after the frame is assembled. The
posts should stand vertical and square. Try the braces before nailing
them in place, to see that they do not draw the frame out of shape.
The first operation in weaving is to cover the tops of the four posts,
which is started as shown in Fig. 5. A short piece of winding reed, G,
is first tacked in place. A round reed can be split if one is careful, in
case winding reed cannot be obtained. Tacks used by shoemakers
are just the thing for fastening these weavings in place. After
fastening the weaving G in place, another, H, is put on in an opposite
direction, whereupon J is fastened on the same as G, and so on,
until the post is covered, as shown in Fig. 6. Perhaps a better way to
cover the posts would be to tack all eight pieces on the post part C,
and then weave them down together. It may not be necessary to tack
them all on the rails.
After the corners are all covered, the end rails B are wound with
the winding reed, the start being shown in Fig. 7, where the frame is
shown in an inverted position. The reed is tacked, at K, to the side
rail, and whenever the winding comes to a hole, a pencil mark is
made to locate the hole later. This mark is shown at L. When the two
end rails are wound, push a bodkin, or other steel point, in between
the windings where the marks are located, to make way for the
insertion of the spokes. It may appear to an observer that the spokes
could be put in before the winding, but the winding cannot be
properly done after the spokes have been inserted, as the windings
would separate too much around them. The hole must be opened up
through to the opposite side of the rail. Single spokes go through the
rail, and they are only put through one end rail at first, as the
weaving is much easier with one end of the spokes free, but, of
course, they must be inserted in the other end before the weaving
gets within 2 or 3 in. of that end. An extra spoke is inserted beside
each spoke, as the weaving proceeds and after a strip has been
woven ³⁄₄ in. wide. These short spokes are cut just long enough to fit
in between the end rails. The weaving is done with a single weaver,
and it is passed over and under double spokes as if they were one.
When the weaver comes to the side rail, it is wound twice around the
rail, to take up the space for the two strands across. If the weaver
does not go twice around the side rails each time, either the weaving
will take a curve or the side winding will be loose. The starting of the
weaving is shown in Fig. 8, where the extra spokes are inserted
along the side of each spoke that runs through the end rails.
After the spokes have been inserted in the opposite end rail and
the weaving in the top completed, the braces and posts should be
wound. Where the braces D connect to the posts C, three strips of
the winding reed are passed around the post and tacked on both
sides of the braces, as shown at M, Fig. 9. Where the braces cross,
the winding passes around both pieces for a short distance, as
shown at N. It is quite appropriate to use the brass caps O on this
model, but on many stools their use has been discontinued and the
winding continues down to within ¹⁄₈ in. of the bottom of the post. In
case the brass cap cannot be obtained, the winding may be used
also on this model.
Fig. 1 Fig. 2
Fig. 3 Fig. 6
Fig. 5 Fig.
Fig. 4
7
Fig. 8 Fig. 9
Details of the Dowel Pieces, Showing Dimensions for Drilling the Holes to
Admit the Spokes of Reed, Manner of Building the Framework, and How the
Top is Woven
The side weaving is called the apron, and in this case the pairing
weave is used. The short spokes will have to be inserted in the
under side of the side rails, and the extra spokes are added after the
weaving is started and a small strip woven. The pairing weave is

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International Business Competing In

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