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Economics (AS & A Level) · May / June 2024 · Paper 32 · Question 28

9708Relationship between countries at different levels of development

A multinational company (MNC) buys a manufacturing firm in a developing country that produces goods for the developing country's domestic consumers. The MNC then exports machinery and raw materials that it needs to the developing country. What is the most likely consequence of this foreign direct investment (FDI) by the MNC on the balance of payments of the developing country?

  1. Acurrent account improves; financial account improves
  2. Bcurrent account improves; financial account worsens
  3. Ccurrent account worsens; financial account improves
  4. Dcurrent account worsens; financial account worsens

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Correct answer: C. current account worsens; financial account improves

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