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MGT411 - Money & Banking - Lecture Handout 06

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FINANCIAL INSTRUMENTS & FINANCIAL MARKETS

  • Financial Instruments
  • Examples
  • Financial Markets
  • Roles
  • Structure
  • Financial Institutions

Examples of Financial Instruments

Primarily Stores of Value

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MGT520 - International Business - Lecture Handout 37

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FOREIGN DIRECT INVESTMENT

Reasons for Host Nation Intervention:

Balance of Payments:

  1. Many governments see intervention as the only way to keep their balance of payments under control.
  2. Countries get a balance-of-payments boost from initial FDI flows into their economies. Local content requirements can lower imports, providing a balance-of-payments boost. Exports generated by production resulting from FDI can help the balance-of-payments position.
  3. When companies repatriate profits, they deplete the foreign exchange reserves of their host countries; these capital outflows decrease the balance of payments. To avoid this, the host nation may prohibit or restrict the no domestic company from removing profits.
  4. Alternatively, host countries conserve their foreign exchange reserves when international companies reinvest their earnings in local manufacturing facilities. This improves the competitiveness of local producers and boosts a host nation’s exports—improving its balance-ofpayments position.

Obtain Resources and Benefits:

Access to Technology:

Nations encourage FDI in technology because it increases productivity and competitiveness.

Read more: MGT520 - International Business - Lecture Handout 37