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Direct investment / Political risk
A distinction between the project and parent perspectives when capital budgeting in a global situation
There are two different viewpoints in capital budgeting known as project and parent. The project is a locally addressed perspective that is child to the parent. The parent is the main organization in which the projects financial and operating cash flows will be directed. The project perspective is very useful in local purposes. However, it is subordinated to the evaluation from the parent's viewpoints (Moffett, Stonehill & Eitemen, 2012). A project evaluation will guarantee cash returns based on the host-governments bonds. In case a project were to fail in receiving cash equal to the bond yield, a parent firm should buy host government bonds instead of investing in a risky project or investing somewhere else. Multinational firms should invest only if they can earn a risk-adjusted return greater than locally-based competitors can earn on the same project (Hough & Neuland, 2008). In case this is not possible, stockholders will invest their shares in local firms and letting those companies carry out the local projects.
Although project firms are systematically part of the parent firm, parent firms hold more responsibilities as they are the owners to project organizations. Parent firms will give results that are typically closer to the traditional meaning of the net present value in...
Necessarily a parent firm will take care of any standardized actions that a project firm was unable to complete. Meanwhile, project firms will provide estimates closer to the effects on consolidated earnings per share, which may become a major issue for managers.
2. A contrast of different courses of political risk
Political risks are typically faced by corporations, governments, and investors. These risks can be managed with reasonable foresight and investment. There are two levels of political risks, which are known as the macro-level political risk and micro-level political risk. Macro-level political risk will focus on non-project explicit risks at local, national, and regional sector (Moffett, Stonehill & Eitemen, 2012). However, this is a common misconception that macro-level political risks will only look towards the host country's specific political risk level. Many of the macro-level political risks will deal with national security will pose risks on how a foreign government will run the current affairs. This level of political risks also poses threats to corporations that operate in foreign regions. The political risks will be more or less like a confiscation of business culture causing the seizing of the business property.
Nevertheless, micro-level political risks will look at non-project distinct risk to the local economy and the country…
3. A contrast of the various factors that impact foreign direct investment
Foreign direct investment is an investment made by a company and/or entity that is based in one region into another company and/or entity based in another one. There are many things that differ from direct and indirect investments such as the portfolio flow (Moffett, Stonehill & Eitemen, 2012). Therefore, overseas institutions invest in equities listed on a nation's stock exchange. Entities that make direct investments will typically have significant degrees of influence and control over the company into which the investment is made. Nevertheless, the open economies that consist of well-trained workers and project good growth prospects will tend to attract a larger amount of foreign direct investment than the closed economies which are highly regulated economies. Determining the best method that a company will adopt may make its overseas investment encounter different depending on the circumstances of the economic environment.
Some examples would be to set up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company, through a merger, or joint venture. The regulated threshold for a FDI relationship (defined by the OECD) is at least 10% (Moffett, Stonehill & Eitemen, 2012). In other words, the foreign
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Fiji Political risk is the risk that is associated with the political stability of a nation and the risk associated with political actions on the part of a nation's government. A decline in the economy of a nation because of a violent change in government falls under the category of political risk, as does the risk of nationalization or other adverse government action directed at the company. There is considerable political
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Capital Budgeting and Foreign Direct Investment Decision 1. How big is the risk for KFC to enter the African market? What can go wrong? All business transactions encompass some magnitude of risk. Moreover, when such transactions traverse global borders, they come with extra risks that are more often than not lacking in domestic business transactions. According to Peters (2010), this level of risk is not as extensive and severe as perceived. Africa
International Business Across Chinese Border Heightened global interdependence characterizes Today's economic world. Currently, the world is experiencing an unprecedented degree of cross-border economic and capital interdependence, both with developed and developing economies. The global economic system has dramatically transformed; we are experiencing power being transferred to new players. India and China have become two stars of global interconnectivity and economic expansion. In fact, just recently, the government of China opened their markets