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Why Do Foreigners Invest in the US - Research Proposal Example

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The paper “Why Do Foreigners Invest in the US?” evaluates a foreign investment, which is dependent on two factors or profitability and growth. So all the factor affecting these two factors affect foreign investment. On a national level, foreign investment in a country is directly correlated to its macroeconomic indicators…
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Why Do Foreigners Invest in the US
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Download file to see previous pages FDI U.S. assets and companies have been a subject of controversy since the end of the WWI. Increased holdings of US assets by foreign investors, has worried US politicians and citizens alike, particularly since the events of September 11th, 2001. The US Congress enacted the Exon-Florio Amendment in 1988 under President Ronald Reagan, the president has the power to block any foreign acquisition of a US company if it is deemed that that transaction is a threat to or will impair, US national security. (Jackson, 2007) \US is the largest beneficiary and investor of FDI in the world, with roughly $2.2 trillion stock of FDI in the US at the end of 2008 corresponding to approximately 16% of U.S. gross domestic product. (CIA World Fact Book, 2009) Foreign investors have earned considerably lower returns on their U.S. investments over the past few years than U.S. investors have earned abroad. Data shows foreigners investing in the US only earned an average annual return of 4.3% on their investments over the last five years, which is less than the 11.2% return that U.S. investors earned on their foreign investments. The USD is the most held reserve currency in the world, followed by the Euro. As of 2008, the USD made up for 64% of the total official foreign exchange reserves (Source; IMF) USD has been historically viewed as being the most stable currency. As a result, this attracts other nations to invest in the U.S. In 1975, members of OPEC, under pressure from the US, agreed to only sell their oil in. USDs. Now all countries in the world needed USDs to buy oil. This led to them investing in US assets to earn profits in USD rather than converting local currencies into USD. As a result, this attracts other nations to invest in the U.S. as the likelihood of it being a stable investment with regular returns is much higher. And according to Forbes (2009), if a country has larger reserve holdings, it is more likely to accumulate the “safe-haven asset” of U.S. bonds. Foreign firms looking to diversify their investment portfolios generally feel that the United States is a safe bet because of this perceived stableness. ...Download file to see next pagesRead More
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