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Multinational Capital Investment in Ruritania - Case Study Example

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This paper "Multinational Capital Investment in Ruritania" discusses multinational capital investment, there are many factors to be considered before deciding on the investment. This can be classified as economic, financial, political and social…
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Multinational Capital Investment in Ruritania
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Download file to see previous pages The main risk factors with an emphasis on financial issues, which are important for this decision, are examined in this report. Further, the main financial factors to be considered before making the decision are discussed based on investment appraisal techniques. The next section examines the available evidence on the risk factors and estimation for international investment. In section 3, these factors are examined for the country studied here. In section4, the financial issues to be considered based on investment appraisal techniques are discussed. In section5, appropriate recommendations are made regarding the investment decision for the case presented here.

According to Nagy (1984), the main risks in multinational capital investment can be classified as economic, financial, social, political and natural factors. The economic factors consist of a change in the economic structure or growth rate like fiscal, monetary and international changes, which causes a significant change in the return of an investment. The financial risk factors include changes in the currency exchange rate and government flexibility in allowing the firms to repatriate profits or funds outside the country. The political factors include instability and the political actions of government like attitude towards international investment, which can affect the investment. Social and natural factors include risk arising from technological changes, environment changes, etc (Meldrum, 2000).

Many studies have attempted to examine the country's risk while conducting international investment based on several methodologies. In the study by Bhalla (1983), a four-step process explains a country risk analysis for foreign direct investment by a multinational corporation. In this study, foreign investment risk management is defined as the process of evaluating the political stability and the market potential of a particular country by a multinational corporation. In this study, a two-dimensional matrix consisting of four variables for each dimension of political risk and economic risk called the foreign investment risk matrix is developed. ...Download file to see next pagesRead More
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