Question

Identify and explain the risks that an MNC face in having foreign direct investment in a country. Please be detailed with atl east 350 words or more.

Answer 1

Foreign direct investment

A foreign direct investment is working by controlling ownership in a business in one country by an entity based in another country. It include almost every financial transaction like meger and acquisition, Puchase of property, reinvesting etc. So actually it is the process of controlling the business in one country by the person in another country.

Risk associated with foreign direct investment?

There are many factors that should be considered by the MNCs while making a foreign direct investment. There are many risk is associated with the foreign direct investment.So proper study should be made about the country where we are going to invest. Lets see some factors which a MNCs should be consider before making FDI.These are wage rates, tax rates, political enviornment, economical factors,infrastructure, Exchange rate etc. So these factors should be take care inorder to make a good investment. Because these factors are differ from country to country. The policies and rules and regulations are different in every country.

When we are classifying this risk we can identify that there are political risk, economic risk, Exchange rate risk, Enviornmental risk etc are there. Political risk is happen because of the result of political changes or instability in a country. The countries politics will affect the investment. When we are looking into the economic risk we can undertand that the global econmy and country economy is different. There are developed, developing and underdeveloped economies and it is differ from country to country. So before make an investment we should consider which king of economy os this and there is any fluctuation in the economy or not. Exchange rate is the risk associated with the currency exchange. Here the value of each currency is different. Some currency have more value than other currencies. So when we are making investment exchange rate is an important thing that the value fluctuation depending on the inflation and diflation of the country will affect the investment. Another kind of risk is that enviornment risk. when we are investing in another country we should be aware about the enviornmental set up of that country and we should properly follow the enviornmental policies and laws relating to that country. These are some risk assciated with Foreign direct investment.

ThankYou....