Question

Explain 5 consequences on foreign direct investment when a country receives a lower sovereign rating.

Answer 1

Foreign Direct Investment (FDI):- FDI is an investment made by a company or individual in one country into business interests located in different country. FDI are actively used in open markets rather than closed markets for investors.
Sovereign Rating :- A Sovereign credit rating is the credit rating of a sovereign entity, such as a federal government. It indicates the risk level of the investing environment of a country.

The Effects of Sovereign Credit Rating on Foreign Direct Investment:-
1. Global investors prefer investing in those countries which have received a Sovereign Credit Rating (SCR).
2. Sovereign Credit Rating(SCR) downgrades the international CRA's.
3. If a country receives a lower sovereign ratings, global investors do not show any interest in investing that country.
4. Export and Import activities are greatly affected by lower sovereign ratings.
5. Sovereign ratings downgrades could automatically drive up interest costs on debt for a country is looking to borrow from abroad.