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globalization in the world
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In financial terms, Exchange Rates (ER) refer to the worth of two different currencies in regards to each other (Sullivan & Sheffrin, 2003), whereas the Foreign Direct Investment (FDI) refers to the net inflows of foreign investments. This is so if the investment is to acquire a lasting interest in terms of management where the enterprise that is operating in the specific economy in question is a different entity from the investor (Soltani, 2009).
In recent years there has been an increased understanding as to the forces of the concept and usage of economic globalization. This can only be implemented by the utilization of foreign direct investment by the multinational corporations. This is realized where and when a firm forms its base in one country but locates and or acquires its facilities for production in another country or countries. The realization of this could not have been at a greater time than now when there are conclusive reports that between 1986 through 1999, the GDP of the real world grew by at a rate of 2.5 percent annually whereas its export grew by 17.7 percent. What should be noted is the difference so high that no economic conscious business would fail to recognize (Bernard, Jensen & Schott, 2005).
The importance of foreign direct investments cannot be downplayed by any means. There has however been little research as to the importance of its importance of it in the host countries and or host countries as the concept is still pretty young (Blonigen, 2005). This more so can be contributed to the fact that there has been no real decision as to what triggers foreign direct investments. There has however been undisputed proof that most of the US corporations tend to indulge their businesses to India, China, Malay...
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Grubert, H., & Mutti, J. (1991). Taxes, Tariffs and Transfer Pricing in Multinational Corporate
Decision Making. The Review of Economics and Statistics, 73(2), 285-293. Retrieved from http://www.jstor.org/stable/2109519?origin=crossref
Hines Jr., J. R. (1996). Altered States: Taxes and the Location of Foreign Direct Investment in
America. American Economic Review, 86(5), 1076-1094. National Bureau of Economic Research Cambridge, Mass., USA. Retrieved from http://www.nber.org/papers/w4397
Soltani, E. (2009). Foreign Direct Investment. Direct (Vol. 2004, pp. 1-17). Sage Publications,
Inc. Retrieved from http://eprints.lancs.ac.uk/23312/
Stevens, G. V. G. (1998). Exchange rates and foreign direct investment: A note, 20(3), 393-401.
Sullivan, A., & Sheffrin, S. M. (2003). Economics: Principles in action (p. 474). Pearson
Prentice Hall.
The real exchange rate tells us the rate at which we can trade the goods of one country for goods from other countries. The real exchange rate some- times referred to as the terms of trade. To view the exchange rate relationship in real terms using the nominal exchange rate, can be taken samples h a goods produced in some countries, such as cars. Suppose the price of the car with 25,000 dollars, while the price of Japanese cars is 4,000,000 yen . To compare the prices of both cars , we have to transform them into a common currency. If one dollar worth of 80 yen , the price of cars Americans to 80 x 25,000, or 2,000,000 yen. By comparing the price of an American car (2,000,000 yen) and the price of Japanese cars (4,000,000 yen), it can be concluded that the price of the American car is half the price of Japanese cars . In other words, pad a price effect we can swap two American cars to get a Japanese car . Peng count can be written as
I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.
...irect control of foreign interests, absolute and comparative advantages and sometimes the strength of ties with major foreign markets. The problem of geographic and economic distance is one that is not solved easily. There must be a cross-border trade in goods and services and this could be done with little direct involvement abroad. Businesses may also be able to systematically work local markets abroad by establishing branch offices in the given country. There is also the option of investing in an existing firm abroad, which minimises the risk involved. Ideally, investor motives will broadly match the requirements of target countries or firms, with the interests of the latter focusing on expanding production capacities, enhancing productivity growth, benefiting from employment opportunities and getting access to technological know-how (A. Breitenfellner, 2008).
The use of foreign exchange arises because different nations have different monetary units, and the currency of one country cannot be used for making payments in another country. Because of trade, travel, and other transactions between individuals and business enterprises of different countries, it becomes necessary to convert money into the currency of other countries in order to pay for goods or services in those countries. The transfer of money values from one country to another and the determination of the price at which the currency of one country will be surrendered for that of another constitute the main problems of foreign exchange. Foreign exchange is a commodity, and its price fluctuates in accordance with supply and demand. Exchange rates are published daily in the principal newspapers of the world. By international agreement fixed exchange rates with a narrow margin of fluctuation existed until 1973, when floating rates were adopted that fluctuate as supply and demand dictate.
After the financial crisis of 2008 there has been a dramatic decrease of foreign direct investment (FDI) around the world. Particularly the rapid decline in inflows has affected the recovery speed of FDI around the world. Inflows into Europe contracted by 42% and to North America by 21%, inflows to Australia and New Zealand together declined by 14% 1. However there are few exceptions to the trend, such as the United Kingdom who have managed to keep its FDI attraction. UNCTAD has confirmed that FDI inflows into the UK have risen by 22% 2 over the past year.
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
We all know that the foreign investment is a necessary part of global expansion. Many developed countries prefer to invest developing countries. For instance, the US has invested much more fund in China. Since the initiation of its market reforms in the 1980’s. China has been a preeminent recipient of foreign direct investment (FDI). Until 2011, there is over $1.2 trillion have been invest in China as foreign direct investment, it made Chinese industries has been transformation, and contributed enormously to the nation’s industrial output. In addition, the more foreign manufactures, the more Chinese subsidiaries have dominated (Wei, Xiao & Yuan, 2014).
In realising that foreign investments are the key source of the nation’s economic rise, the Chinese government has given special preferences to foreign investors (Financial Express, 2006). This is mostly done through reduction of most favoured nation (MFN) tariff rate. In India, on the other hand, fair competition exists between domestic and foreign investors. Although the Indian government states that it aims to reduce its MFN tariff rate, which currently doubles the rate in China, to other ASEAN country levels, it is in reality a big challenge because a large portion of the nation’s tax revenue comes from customs tariffs (Henley, 2004).
Gary M. Walton and Hugh Rockoff, History of the American Economy, 10th edition, 2005, South-Western, 446
One of the core benefits of global foreign direct investment is that it creates an opportunity for money to freely flow to any business around the world that shows any signs of potential growth in the future. This is in light of the fact that when investors choose to invest their money, the main logic behind this is that they expect some form of return from the investment. Additionally, the home country’s capital account will benefit from the inward flow from the returns on the investment.
A multinational enterprise (MNE) is an organisation that holds a hefty equity share; usually fifty percent or more of another organisation, functioning in an overseas country. The multinational enterprise (MNE) can be formed when an organisation in one country makes an impartiality investment in an organisation, in another country. Foreign direct investment (FDI) is an investment in an overseas organisation where the overseas financier holds at least ten percent of the average shares, accepted with the objective of proven a ‘lasting interest’ overseas, a durable bond and momentous influence on the management o...
However, on the other hand, as much as the world trade organization has been committed and determined to form the CNS of trade and commerce for its member countries through policies, it has been exceedingly hard as national interests and policies override the organizations’. This has subsequently hampered the organization’s pursuit to equal development between member states. The concept of FDI has not been fully harnessed due to the complexity found within the concept. It has been felt that host countries have been the key beneficiaries of FDI at the expense of the investor’s country. Profits are ploughed back within the host country’s economy as investors pay licensing fees and other charges to the authorities of the host country with little to plough back to their mother countries. This has hugely compromised the concept of FDI (Helpman, 54).
Because this rate, along with the nominal, are constantly in use in the global economy, these rates can fluctuate depending on a range of factors ...
...sted in developing countries like Brazil and India by starting production units, but what we also need to see is the amount of Foreign Direct Investment (FDI) that flows into the developing countries. Companies which perform well attract a lot of foreign investment and thus push up the reserve of foreign exchange.
Sukar, A., Ahmed, S., & Hassan, S. (n.d.). THE EFFECTS OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH. Southwestern Economic Review.