Impact Of Exchange Rate On Foreign Direct Investment Finance Essay - Free Essay Example

Sample details Pages: 5 Words: 1616 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? The main purpose of this paper is to find out the impact of Inter Bank Exchange Rate on Foreign Direct Investment Inflow in Pakistan. To determine the impact of Inter Bank Exchange Rate on Foreign Direct Investment Inflow two variables are to be selected that are Inter Bank Exchange Rate and Foreign Direct Investment Inflow. To test the hypothesis that Inter Bank Exchange Rate has a positive impact on Foreign Direct Investment Inflow in Pakistan. Don’t waste time! Our writers will create an original "Impact Of Exchange Rate On Foreign Direct Investment Finance Essay" essay for you Create order Regression Analysis technique is to be used. This research study will show the positive impact of Inter Bank Exchange Rate on Foreign Direct Investment Inflow in Pakistan. Sample data of last 19 years is to be taken to test the hypothesis. The main purpose of this research study is to find out relationship between Inter Bank Exchange Rate and Foreign Direct Investment Inflow in Pakistan. This research study will show the positive impact of Inter Bank Exchange Rate on Foreign Direct Investment Inflow in Pakistan. This research study will help investors in Pakistan to see that Pakistan is a growing market and it has potential for Investments. That investments will yield more profits. The international business literature, on the other hand, has in general observed that a devaluation by the source country will in fact make foreign investment less attractive, while a devaluation by the host country will make expansion of already existing foreign subsidiaries more profitable (Dufey). For example, Japanese experts often cite the early 1970s yen revaluations as a main reason for the expected surge in Japanese foreign investment (Litvak and Maule and Sherk). Makin has concluded that the 1960s view of the United States as a permanent capital exporter and (say) Germany and Japan as permanent capital importers may have been incorrect. He notes that the observed direction of flows could have been due to disequilibrium exchange rates a flow that would then be slowed or reversed by recent yen and mark upward revaluations and the dollar devaluation. This effect was also predicted much earlier by Houthakker. In keeping with this view, the modern theory of FDI since Hymer (1960), Kindleberger (1969), and Vernon (1966) stresses that FDI occurs not because of cost-of-capital differences but because certain domestic assets are worth more under foreign control. Klein and Rosengren find that, even after controlling for relative wages, a 1 percent increase in the foreign currency value of foreign stocks has roughly the same (statistically significant) impact on U. S. FDI inflows as a 1 percent depreciation of the dollar. In the last decade there has been an increasing interest in the link between foreign direct investment (FDI) and exchange rates. Two models, Cushman (1985) and Froot and Stein (1991), discuss the factors that might lead to a correlation between the value of the dollar and the level of foreign investment in the United States. Harris and Ravenscraft (1991), and Swenson (1993), have provided evidence that a depreciating dollar is associated with both higher flows of FDI into the United States and higher foreign takeover premia. Expected exchange rate changes can affect various aspects of the investment decision, including the timing of decisions (Kohlhagen 1977) and debt denomination (Cushman 1985). Cushman (1985) and Froot and Stein (1991) explore the factors that might contribute to correlation between the external value of the dollar and the level of foreign investment in the U.S. They have found that modeling a link between FDI and exchange rates would require some beliefs in the long-run and short-run deviation from PPP on the cross-border investment process. There is also a counter-argument that changes in exchange rates also affect the value of foreign direct investment (Lee and Sullivan 1995). The currency area theory, advanced by Aliber (1970) and Heller (1981), argues that a strong currency causes outflows of foreign direct investment and a weak currency causes its inflows. Thus, the corporation obtains a higher expected profit than it would have if it had not diversified internationally by foreign direct investment Grubel (1988). This argument suggests a positive correlation between real exchange rate flexibility and foreign direct investment. Bailey and Tavlas (1991) showed that exchange-rate risk has an ambiguous effect on the FDI of a risk-averse firm. Kindleberger (1969) argued that in order for direct investment to exist, there must also be market imperfections or government intervention. Otherwise, individual economies would produce only those goods and services for which they had a comparative advantage, and other goods would be provided through trade. Exchange rate fluctuations may also create incentives for foreign direct investment, as multinationals stabilize profits by spreading exchange rate risk across countries (Rugman, 1979). Inflows of foreign investment can modernise and expand the stock of physical and human capital in the economy, helping to fill what Romer (1993) termed object gaps. LITERATURE REVIEW Article Number 1: Exchange Rate Changes, Profitability, and Direct Foreign Investment. This research study has been conducted by Steven W. Kohlhagen. The main purpose of this paper is to measure the major European exchange rate changes of the 1960s effected U.S. foreign direct investment. To conduct this research study data has been taken from tabulated data appearing yearly in the summary article in the survey of current business. The data collected for this research study was taken from the year 1957 till 1973. The results of the effects on U.S. Foreign investment of dummy variables representing all four parity changes are presented in research paper. The set of the four exchange rate changes taken together significantly explain total U.S. Foreign direct investment and U.S. Foreign direct investment in Europe and the EEC. In all three cases the coefficient has the expected positive sign and is significant. Article Number 2: Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach. This research study has been conducted by Kenneth A. Froot and Jeremy C. Stein. The main purpose of this paper is to examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. We develop a simple model of this phenomenon and test for its relevance in determining international capital flows. A simple model in which relative wealth-and therefore the exchange rate has a systematic effect on FDI. Furthermore, additional support for our model over competing alternatives comes from the finding that shocks to wealth other than the exchange rate also help to explain U. S. FDI inflows. Article Number 3: Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty. This research study has been conducted by Linda S. Goldberg and Charles D. Kolstad. The main purpose of this paper is to emphasizes and explore the implications of short-term exchange rate variability for foreign direct investment (FDI) flows. Exchange rate variability had a positive and statistically significant effect on four of the six bilateral FDI shares: real exchange rate variability increased the share of total U.S. Investment capacity located in Canada and in Japan, and increased the share of Canadian and United Kingdom investment located in the United States. Article Number 4: Do Exchange Rate Changes Drive Foreign Direct Investment? This research study has been conducted by Kathryn L. Dewenter. This paper examines the robustness of prior test results with respect to the foreign investment measure, the exchange rate measure, and inclusion of a relative wealth proxy. This article has used a new transaction-specific data set to systematically explore the relationship between the value of the dollar, cross border acquisition flows, and takeover premia. The results confirm prior findings that a depreciating U.S. Dollar is associated with higher levels of foreign acquisitions into the United States and higher foreign takeover premia for U.S. Targets. The results go beyond these findings, though, to provide a richer understanding of the nature of the exchange rate relationship. These new findings provide a first step in distinguishing among the various FDI models. Article Number 5: Strategic Foreign Direct Investment and Exchange-Rate Uncertainty. This research study has been conducted by Hongmo Sung and Harvey E. Lapan. The main purpose of this paper is to investigate how exchange-rate uncertainty affects the foreign direct investment decision of a risk neutral multinational firm (MNF). Data are taken from MNF/ Local Firm by opening home plant, or by opening foreign plant and by opening both. The result shows that shows that when a MNF is in competition with a local firm, the exchange-rate volatility, by increasing the value of the option the MNF has to operate in several localities, effectively gives the MNF a strategic advantage that May force the local firm from the market. This result, though derived from different Premises, is analogous to articles that demonstrate that protecting a home market Can confer a strategic advantage in foreign markets. Finally, our results also indicate That increased uncertainty may, under certain circumstances, raise the value of Precommiting actions, a result that is counter to previous res ults. Data and Methodology Data: Variables: Independent Variable: Inter Bank Exchange Rate Dependent Variable: Foreign Direct Investment Inflow Hypothesis: Inter Bank Exchange Rate has a positive impact on Foreign Direct Investment Inflow in Pakistan. Sample size: Sample data of last 19 years is to be taken to conduct this research study. Data has been taken from the time period 1990 till 2009. Source: State Bank of Pakistan website (www.sbp.org.pk) Brokerage Houses www.oanda.com www.indexmundi.com www.kalpoint.com Economic Survey of Pakistan Model: FDI = o + 1 (Exchange) + Error Term Where, FDI = Foreign Direct Investment Inflow 1 (Exchange) = Inter Bank Exchange Rate Methodology: To test the hypothesis Regression Analysis technique is to be used.

Six Flag Example

Essays on Six Flag Assignment Financial ment Analysis a) LIFO method of accounting for inventory is re d into FIFO method as per the requirement of US GAAP. US GAAP requires the companies who use LIFO based accounting for inventories to show a disclosure for FIFO based accounting in the footnotes of financial statements (Investopedia, n.d.). The following is the formula which is used for restatement of LIFO into FIFO: FIFO inventory = LIFO inventory + LIFO reserve Cost of goods sold under LIFO based inventory is restated into the following way: COGS (FIFO) = COGS (LIFO) – Change in LIFO reserve However, Six Sigma uses weighted average method of inventory which does not incorporate the restatement of LIFO into FIFO or vice versa. b) LIFO liquidation is a process by which the companies can manipulate their financial footings. In case when the companies want to show lower amounts of profits and accordingly lower tax liabilities, they liquidate the older inventory. It means that the older inventory valued earlier at lower cost is liquidated into a relatively higher cost and thus increases the cost of production which makes the profits shrunk and reduces the tax liability. c) The LIFO liquidation makes the inventory valuation at a higher amount which thus reduces the inventory turnover (Jan, n.d.).. The higher the inventory turnover, the lesser will be the cost of holding the old inventory, the more efficient will be the utilization of funds. Due to LIFO liquidation, inventory turnover decreases and thus increases the holding cost resulting in increased utilization of funds. 3) a) Due to a change in the average useful life of an asset, it is not needed to restate the entire financial statements because change in the average useful life of an asset is not a change in accounting policy rather it is just a change in management’s assumptions (Investopedia, n.d.). In case of a decrease in the average useful life of the assets, the existing and future depreciation expense of the company will increase which will result in a decrease of net income. On the other hand, if the average useful life of the assets is increased, it will reduce the depreciation expense in the current and future years and thus resulting in higher profitability. b) Profitability ratios are highly impacted due to a change in the average useful life of the assets of the company. Most of the profitability ratios such as net profit margin, return on equity, return on assets etc. are increased if the average useful life of the assets is increased whereas they are reduced if the average useful life of the assets of the companies is shortened. 4) a) Expenses are mainly recognized based on two reputed methods of accounting i.e. cash based and accrual based. Based on cash, expenses are recognized in the financial statements when they are paid. However, based on accrual system of accounting, expenses are recognized when they are incurred, not when they are paid. Almost every corporation is required to follow accrual basis of accounting. b) As far as restatement of financial statement is considered due to expense recognitions, there is no need for restatement as the financial statements of the companies are already prepared on accrual based of accounting which shows that all the expenses amounts presented in the financial statements are recognized when they are actually incurred. 5) a) Fair value accounting and historical cost accounting basis, have become a common debate among finance professionals. When it comes to calculation, inventories and property, plant and equipment and assets and liabilities denominated in foreign currency are valued at historical costs. However, financial instruments (especially derivatives), revaluation model of property, plant and equipment and those economies which are hyper-inflationary are required to use fair value basis of accounting. On the other hand, investors always consider the fair values as the more meaningful source of their decision-making. For that reason, market share price of the company represents fair market value of the company, whereas for historical cost based valuation of the company, book values are divided by the no. of shares outstanding to arrive at historical value or book value of the company. b) Since the diversion from historical cost basis to fair value basis (e.g. cost model into revaluation model in case of PPE), is a change in the accounting estimate. In case of such change in accounting estimate, it is not required to restate the entire financial statements rather only the current year’s amounts are restated with the estimates that are currently applied. c) Fair value accounting at times becomes quite tough because it becomes even difficult to obtain the fair values of the assets and liabilities as the likelihood of over and understatement stays with this method of accounting. On the other hand, historical cost basis of accounting becomes useless for the stakeholders because past data does not reflect the existing financial performance and position of the company. In this way, both these models have their own pros and cons for their application and adoption. 6) Impairment of assets occurs when the management considers their assets to be impaired when carrying amount becomes higher than the recoverable amount Deloitte, (n.d.). In that case, the companies impair their assets and such impaired amount is charged as an impairment loss in the financial statements. However, when there are chances that the asset previously impaired, has a recoverable amount exceeding the carrying amount, then the amount of reversal is charged in the profit and loss account. Profitability ratios become better as a result of reversal of impairment as the net income of the company increases. 7) Marketable securities are the short-term securities that companies own as part of their liquid assets. Gains or losses arising on these marketable securities are stated in the statement of comprehensive income and ultimately equity side of the balance sheet is affected due to gains/losses in the marketable securities. 8) a) In order to hedge the unfavorable effects in the financial instruments, derivatives are used as a measure of hedging such movements. Financial assets and/or liabilities are created so that the unfavorable movements can be dealt with effectively, i.e. minimizing the financial risk of the company. These financial assets and liabilities are created in the balance sheet of the company. b) Derivatives are the chief sources of hedge instruments and generally, they are of four types, i.e. forward, futures, swaps and options. The calculation of the amount hedged is computed as the amount which derivative will drive at the time of exercising the derivative less the cost of purchasing the derivative. 9) a) Foreign currency exposures arise when remittance in foreign currency is to arrive or the payment in foreign currency is due. Downside risk of foreign currency holds in case of remittance and upside risk remains in case of payments. Generally, changes in foreign currency exposures are recognized in the profit and loss account (Weygandt, Kimmel, Kieso, 2010). b) Gains and losses due to foreign currency exposures are recognized in the income statements. Losses are expensed out whereas gains are recorded as the income. c) All four kinds of derivatives are used for mitigating the foreign currency risk exposure. Forward is a binding contract to buy or sell the foreign currency at the pre-agreed price at the specific date. However, counterparty default risk is present. Futures are the standard contracts maturing at a certain date but no counterparty risk is involved. For swaps, other party in the foreign currency with the same problem needs to be sought out for the execution. For options, in case of unfavorable movement of foreign currency, options are exercised otherwise they are lapsed. However, the premium amount is to be paid whether or not options are exercised. References "IAS 36 — Impairment of Assets."  Deloitte. N.p., Web. 15 Apr. 2014. . "CFA Level 1."  Investopedia. N.p., Web. 15 Apr. 2014. . "Inventory Turnover."  Investopedia. N.p., Web. 15 Apr. 2014. . Jan, Irfanullah. "Inventory Turnover Ratio."  Accounting Explained. N.p., Web. 15 Apr. 2014. . Weygandt, Paul D., Kimmel, Kieso, Donald E.  Financial Accounting: IFRS Edition  . Chicago: John Wiley Sons, 2010. Print.

Debut Albums and Happiness free essay sample

Happiness. What Is Happiness? Everyone has a different perception towards happiness. Throughout our life, each of us as human being had been struggling to find the key to happiness without realizing that the key to happiness is actually within us. Some might say that the rich are often the happiest because they have the most luxury. Others might say that the poor are often the happiest because they are poured with love and gratitude. We all should never use the rich and the poor as example in terms of happiness. Happiness is a state of being happy and the feeling of contentment.It is a fuzzy concept that can mean different things to each one of us. Everyone deserves happiness In their life. Open the door to your heart and let happiness bloom. Happiness is a little book of little things. The little things, at the end of the day offer the simple Joy we seek. We will write a custom essay sample on Debut Albums and Happiness or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page We often dont appreciate the little things in life and tend to focus on the much bigger ones. As we look back, those little things are the ones that could actually put a smile on our face. A friend that tried to keep us happy when were unhappy. Our mom cooking our favorite meal when were home from school.Our dad carrying us into our bedroom when we unexpectedly fallen asleep on the couch. Our class teacher giving us a sticker on our homework because we excelled In It. Having a star next to our name on the student board due to good behavior. All these little things gave us a moment of happiness. Enjoy the little things in life for one day we may look back and realized they were actually the big things. Happiness is being inspired and to be able to inspire others. Being inspired by John Greens The Fault In Our Stars was one of the best Inspiration Vive ever had and It gives me happiness. E of the best quote In the book Is The fault, dear Brutes, Is not in our stars, but in ourselves, that we are underlings. The quote was expressed as an idea that men themselves are responsible for their action. Same goes to us, we are responsible for our action, our action to seek for happiness, we are the only person who can make ourselves happy, were as happy as we chose to be. When we are happy, we are able to inspire others and it doubles our happiness because inspiring others give us happiness too. Happiness is like perfume, you cant pour It on others without getting a few drops n yourself.It means that we have to be happy In order to make the people around us happy. If were not smiling and being grumpy all the time, people will not be smiling at us too. There are hundreds of languages in the world, but a smile speaks it all. So, smile as the world revolve around you. Smile because theres so much to smile about. Smile as you might be somebody reason to smile. Start every day with a smile on your face with positive energy around you. You will not be only bringing happiness into your life, but you are also bringing it into the life of the people that are around you.Last but not the least, happiness Is found when we stop comparing ourselves to people. We have to start believing In ourselves. Believing In ourselves Is the first secret to success and happiness. Why do you want to compare yourself to others 1 OFF happiness within yourself. We are all equal in the fact that we are all different. Its alright to have a happiness that is different from others. Thats the purpose of life. To live a life that is different from the rest. As we grow old, we could all share the journey of our life Happiness. As a conclusion, theres happiness in every single thing in our life. Happiness is a journey, not a destination; happiness is to be found along the way not at the end of the road, for then the Journey is over and its too late. The time for happiness is today not tomorrow. Start appreciating all the little things in our life but never neglect the bigger ones. Get inspired and inspire others. Dont forget to smile, its free therapy. Believe in yourself and happiness will start to follow. Your happiness begins with the choice you make and the key to happiness lies within yourself. Remember, there is no way to happiness. Happiness is the way. Debut Albums and Happiness free essay sample How does a person know he/she has achieved genuine happiness? A person can tell that he/she has achieved genuine happiness once he/she has a positive perspective towards life. Such an attitude influences a persons manner of treating other people. Happiness is the key to a successful Journey In life. The Important role my family played taught me the satisfaction of love and not material things. Similarly, my friends taught me the Importance of being treated equally for we are born to be true not to be perfect. The unconditional love my family has shown me has truly shaped my knowledge of nine happiness. First, my family taught me that the satisfaction of happiness Is not through material things but the love shared with one another. For example, when I was young my aunt would always buy me toys and other stuff that would make me happy. As I grew up I realized that any material things wouldnt satisfy me because they are temporary happiness a person can have. We will write a custom essay sample on Debut Albums and Happiness or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page More importantly it made me realized that my family is more than enough for me. Additionally, my family also taught me that failure is a key to success, which leads us to happiness.For example, I eave always tried my very best at school but sometimes I dont meet my expectations and achieve my goals. Nevertheless, my family never makes me feel bad about my self and my grades. Instead they remind me that grades doesnt determine how good of a person or what kind of a person you are. In conclusion, true happiness is the love and acceptance that a family can provide. My friends are my second family who completes my happiness. First of all, my friends taught me the importance of being treated equally with one another. As for me, I have friends that are different races, beliefs, and personality.However no matter what our differences are, they never fail to prove to me that theyre my real friends they manage to give me the respect that I need and most importantly they accept me as the person who I am. Furthermore my friends embraced me with the knowledge of being contented with what I have and to appreciate them. As an example, Vive always thought having new clothes and shoes will make me happy. However that Is not what matters. Its about having a simple and true friendship that made me realize how blessed I am with what I have and that I should always be artful and thankful.In conclusion, with all the love and acceptance received from my friends I can say that they were the key to my happiness. Overall, my friends and my family played Important roles that taught and helped me find the true meaning of happiness. Without them, my happiness wouldnt be so meaningful and precious. Throughout my journey finding my happiness I realized the importance of my family and friends. In order to achieve true happiness, we should accept and love ourselves first.