Question

In: Finance

International Investments U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak...

International Investments U.S.-based MNCs commonly invest in foreign securities.

Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?

Explain how low U.S. interest rates can affect the tendency of U.S.-based MNCs to invest abroad.

In general terms, what is the attraction of foreign investments to U.S. investors?

Solutions

Expert Solution

If the dollar is presently weak and expected to strengthen:

  • Dollar is expected to become attractive.
  • Strengthening dollar means, in future you will require lesser dollar to buy the same quntum of foreign currency
  • The demand for dollar will increase
  • Hence, US based investors will prefer to invest in dollar and hence trade in doemstic securities.
  • Hence, the US investors' will have to lower or weak tendency to invest in foreign securities.

Similarly, if interest rates on dollar is low or lower, US investors will find dollar unattractive than before. Investors will starting investing in foreign securities. Hence, a low US dollar interst rate will impact positively the tendency of U.S. based MNCs to invest abroad. A low dollar interest rate will orient the US based MNCs to invest abroad.

The general attraction of foreign investments to U.S. investors:

  • Expectation of higher returns than the dollar return
  • Diversification of the investment portfolio across geographies

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as...
You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.12 = €1.00 and the dollar-pound exchange rate is quoted at $1.28 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.16, the intrinsic value for the cross rate is _________.
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has depreciated by...
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has depreciated by about 10 percent against the euro. A year ago you took out a home equity loan in the U.S. at an interest rate of 8 percent and you invested the money in a German mutual fund that paid a 5 percent euro return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM)....
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has depreciated by...
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has depreciated by about 10 percent against the euro. A year ago you took out a home equity loan in the U.S. at an interest rate of 8 percent and you invested the money in a German mutual fund that paid a 5 percent euro return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM)....
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has appreciated by...
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has appreciated by about 8 percent against the peso. A year ago you borrowed in the U.S. at an interest rate of 4 percent and you invested the money in a Mexican mutual fund that paid a 12 percent peso return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM). (B) Explain the following statement:...
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has appreciated by...
Dollar Return on Foreign Investments - (A) Over the past year, the dollar has appreciated by about 8 percent against the peso. A year ago you borrowed in the U.S. at an interest rate of 4 percent and you invested the money in a Mexican mutual fund that paid a 12 percent peso return. What net return did you earn on all of these transactions over the year? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM). (B) Explain the following statement:...
Given the following information: Imports $241.0 Net income from foreign investments 66.7 Foreign investments in U.S....
Given the following information: Imports $241.0 Net income from foreign investments 66.7 Foreign investments in U.S. 8.4 Government spending abroad 4.6 Exports 175.7 U.S. investments abroad 24.9 Foreign securities bought by U.S. 3.8 U.S. securities bought by foreigners 2.3 Purchase of short-term foreign securities 8.0 Foreign purchases of U.S. short-term securities 8.8 Determine the balance on the U.S. current account and capital accounts. Round answers to one decimal place. Balance on current account: $   Balance on capital account: $  
There are two main types of international investments, portfolio investments and foreign direct investment. Specifically looking...
There are two main types of international investments, portfolio investments and foreign direct investment. Specifically looking at foreign direct investments, this “refers to an investment in or the acquisition of foreign assets with the intent to control and manage them”. Purchasing the assets of a foreign company, investing in the company, or participating in a joint venture with a foreign company, are all ways companies can make a foreign direct investment. The UNCTAD Stat web page stated that the international...
What are the motives for direct foreign investments? Assume you have a foreign target in 3...
What are the motives for direct foreign investments? Assume you have a foreign target in 3 different countries, what kind of valuation process will you do? Please explain in detail.
Consider the prices of a U.S. dollar in the following currencies in a foreign-exchange market: Australian...
Consider the prices of a U.S. dollar in the following currencies in a foreign-exchange market: Australian dollar (A$) = 1.35 and Swiss franc (CHF) = 0.90. i) What characteristics does a foreign-exchange market possess? Name any two. ii) What is the price of a Swiss franc in Australian dollars? iii) Consider an Australian investor who is deciding between investing domestically (i.e. within Australia) or in Switzerland. The investor is only interested in the return his investment will yield in 12-months....
4. Consider the prices of a U.S. dollar in the following currencies in a foreign-exchange market:...
4. Consider the prices of a U.S. dollar in the following currencies in a foreign-exchange market: Australian dollar (A$) = 1.35 and Swiss franc (CHF) = 0.90. i) What characteristics does a foreign-exchange market possess? Name any two. ii) What is the price of a Swiss franc in Australian dollars? iii) Consider an Australian investor who is deciding between investing domestically (i.e.within Australia) or in Switzerland. The investor is only interested in the return his investment will yield in 12-months....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT