Read the following passages and answer the items that follow each passage. Your answers to these items should

Question

Read the following passages and answer the items that follow each passage. Your answers to these items should be based on the passages only. The need for Competition Law becomes more evident when foreign direct investment (FDI) is liberalised. The impact of FDI is not always pro-competitive. Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a joint venture with one. By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market, thus charging higher prices. Another scenario is where the affiliates of two separate multinational companies (MNCs) have been established in competition with one another in a particular developing economy, following the liberalisation of FDI. Subsequently, the parent companies overseas merge. With the affiliates no longer remaining independent, competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated. Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place. Also, an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not. This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and know how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms. Which of the following can be best inferred from the given passage?

Accepted Answer

The correct option is C because the passage explicitly states that an effective competition law helps avoid the adverse consequences of mergers and acquisitions by ensuring a level playing field. It mentions that MNCs expect competition authorities to maintain this balance between domestic and foreign firms.

Option A is incorrect because the passage says FDI can sometimes lead to dominance, not that it always does. Option B is incorrect because the passage suggests managing the impact of mergers through law rather than banning them entirely. Option D is incorrect because the passage discusses the regulation of FDI rather than claiming it is an essential requirement for growth. Therefore, C is the most accurate inference based strictly on the text provided.

Answer

Foreign investors and multinational companies always dominate the domestic market

Answer

It is not in the best interests of the domestic economy to allow mergers of companies

Answer

With competition law, it is easy to ensure a level playing field between domestic and foreign firms

Answer

For countries with open economy, Foreign Direct Investment is essential for growth.

Explanation

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