The Global Economy Unit Test

Question

11 of 1811 of 18 Items

Question
Which of the following explains how foreign portfolio investment contributes to economic development?(1 point)
Responses

Domestic investors direct capital to foreign countries through the purchase of securities issued by foreign entities.
Domestic investors direct capital to foreign countries through the purchase of securities issued by foreign entities.

Domestic investors direct capital to foreign countries through the merging of domestic and foreign businesses.
Domestic investors direct capital to foreign countries through the merging of domestic and foreign businesses.

Domestic investors direct capital to foreign countries through the purchase of land, labor, and physical capital.
Domestic investors direct capital to foreign countries through the purchase of land, labor, and physical capital.

Domestic investors direct capital to foreign countries through loans and grants issued to promote development.

Answer 1

The correct response is:

Domestic investors direct capital to foreign countries through the purchase of securities issued by foreign entities.

This option accurately describes how foreign portfolio investment works, as it involves buying financial assets such as stocks and bonds from foreign entities, which can lead to economic development in those countries.