Sub: Finance Topic: Foreign Investments
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Foreign direct investment - An Introduction
The growth in multinational organizations has resulted from foreign direct investment which hascontributed to the fact that by the turn of the 21st century over a quarter of the global GDP isproduced by just 200 companies. Foreign investment is the movement or accumulation of long termcapital across political boundaries. It may take the form of cash, securities, plant, equipment, andother factors of production, such as managerial skills, technology, or know how. Categories of international capital flows appearing in the balance-of-payments accounts: namely, short terminvestments, portfolio investments and direct investments. The following are the types of investmentfor students to know clearly about the investment analysis and this will be useful for their financehomework. Short term investments, begins with a discussion of the criterion for making short-termcovered investments when there are costs of transacting in the foreign exchange markets. Sinceshort-term investments are important aspects of cash management, looks at short term borrowingdecisions and a number of other aspects of the management of working capital in a multinationalcontext. Portfolio investment considers international aspects of stock and bond investment decisions,paying particularly close attention to the benefits of international portfolio diversification.It is believed that international diversification offers significant advantages over domesticdiversifications, despites uncertainty about exchange rates. A section is included on the internationalcapital asset pricing model. This model is used to compare the implications of internationallysegmented versus integrated capital markets. Foreign direct investment usually involves somecombination of the above. The transfer of this "package" of capital assets as well as the retention of control is what distinguishes FDI from portfolio investment. Example of Measuring Foreign directinvestment is the United States includes retained earnings and locally financed direct investments byAmerican affiliates in its measure of FDI. Capital budgeting frame work that management can employwhen deciding whether to make foreign direct investments. Foreign investment provides an inflow of