IGCSE Development Studies: Specimen Questions with Answers 43 - 44 of 98

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Understand by Globalization

Question 43 (1 of 8 Based on Passage)

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Explain the following:

Foreign investment

Explanation

Foreign investment: It is the flows of capital from one country to another in exchange for significant ownership stakes in domestic company or the assets of the domestic country. In foreign investment the foreigners take an active part in management as a part of their investment. It works both ways especially between countries of equal economic status.

There are four different types of foreign investment:

  • Foreign Direct Investment (FDI)
  • Foreign Portfolio Investment 9FPI)

  • Official flows

  • Commercial loans

FDI occurs when a business invests in a company which is in another country. For private investment to be considered as FDI, the investing companies no less than 10% of the shares that belong to the foreign company. The company that invest is known as the parent company on the other hand the foreign company is known as the subsidiary company.

Question 44 (2 of 8 Based on Passage)

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What is the impact of outsourcing as a means of development?

Explanation

Outsourcing decreases the barriers to entry and increases the competition across the globe. It allows new entrants to enter the industries at lower cost.

Some of the Key Impacts of Outsourcing Are

  • Increased growth of business- Outsourcing is a new win-win situation it helps the companies to avail themselves of better-quality services at reasonable rates which yields flow of money to the hosting companies.
  • Reduced risk- Many countries from UK and US prefer outsourcing their services to various developing countries which has a pool of talent and follow strict data security policy. When companies outsource to the developing countries the risk of breach of data and sub-standard services are reduced.

  • Increased business efficiency- When companies opt for outsourcing, they get extra time to focus on the core areas which helps them in increasing the overall business efficiency.