Question

make a detailed report on interest rates and foreign direct investment with following headings

1-Intro about interest rate
2-intro about foreign direct investment
3- impact of interest rates kn foreign direct investment
4-does foreign direct investment generate economic growth
5- impact of interest rate in Pakistan

(report should bw of 3 4 pages )

6 - benefits of investing abroad
7 foreign direct investments impact on globalization
8 - world investment report chart

report should be of minimum 4 pages n maximum 7

Answer 1

1.Intoduction of interest rate

Price that someone pays for the temporary use of someone else funds. To repay a loan, a borrower has to pay interest, as well as the principal, the amount originally borrowed.

Interest is the compensation that someone receives for temporarily giving up the ability to spend money. Without interest, lenders wouldn't be willing to lend, or to temporarily give up the ability to spend, and savers would be less willing to defer spending.

Interest rates are expressed as percents per year. If the interest rate is 10 percent per year, and you borrow $100 for one year, you have to repay the $100 plus $10 in interest.

Because interest rates are expressed simply as percents per year, we can compare interest rates on different kinds of loans, and even interest rates in different countries that use different currencies (yen, dollar, etc.).

2.Introduction to FDI

Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest. Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country. A foreign direct investment can be made by obtaining a lasting interest or by expanding one’s business into a foreign country.

Foreign direct investments are commonly made in open economies that offer a skilled workforce and above-average growth prospects for the investor, as opposed to tightly regulated economies. Foreign direct investment frequently involves more than just a capital investment. It may include provisions of management or technology as well. The key feature of foreign direct investment is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business.

3.

"The higher interest rates that can be earned tend to attract foreign investment, increasing the demand for and value of the home country's currency."

Foreign investors would be attracted to the higher interest rate if they are able to receive a better return on their investment than they would get from their local market.

It sounds like your confusion might arise from the fact that a higher interest rate would mean the borrower has to pay out more in interest. Your quote refers to investors, the party receiving the higher interest payments.

A common way in which foreign investors would use higher interest rates to their advantage is by borrowing money locally at a lower rate and investing it in foreign markets at a higher rate. Profits would be calculated based on the difference in interest on the money (in a simplified situation). A more realistic scenario would also include exchange rate fluctuations and other variables.

4.

Yes, FDI has a positive effect on economic growth, FDI and trade are often seen as important catalysts for economic growth in the developing countries. FDI is an important vehicle of technology transfer from developed countries to developing countries. FDI also stimulates domestic investment and facilitates improvements in human capital and institutions in the host countries. International trade is also known to be an instrument of economic growth. Trade facilitates more efficient production of goods and services by shifting production to countries that have comparative advantage in producing them.

Even though past studies show that FDI and trade have a positive impact on economic growth, the size of such impact may vary across countries depending on the level of human capital, domestic investment, infrastructure, macroeconomic stability, and trade policies.

5.

When interest rates change , there are real-world effects on the ways that consumers and businesses can access credit to make necessary purchases and plan their finances. It even affects some life insurance policies. This article explores how consumers will pay more for the capital required to make purchases and why businesses will face higher costs tied to expanding their operations and funding payrolls when the pakistan central bank changes the interest rate. However, the preceding entities are not the only ones that suffer due to higher costs.

Lower interest rates directly impact the bond market, as yields on everything from pakistan Treasuries to corporate bonds tend to fall, making them less attractive to new investors. Bond prices move inversely to interest rates, so as interest rates fall, the price of bonds rise. Likewise, an increase in interest rates sends the price of bonds lower, negatively impacting fixed-income investors. As rates rise, people are also less likely to borrow or re-finance existing debts, since it is more expensive to do so.

6)

Here are some benefits of investing internationally:

Diversification of Your Funds

A diversified financial portfolio gives investors options in terms of economic fluctuations and, by investing internationally, your finances will have alternative sources of stability. In other words, if your money is spread out among various countries, then an economic crash in one country won’t affect other investments.It goes without saying that with diversification also comes a learned understanding of various global economies and markets, but with the help of a financial adviser or with a little research, you’ll have the ability to make informed global investments, which is always better than the “eggs in one basket” approach.

Investing Abroad Means More Options

Just like there’s diversification with investing internationally, there are also many options when it comes to the way you want to invest your finances. And, with international investing growing in popularity, the investment options available in today’s market are quickly becoming commonplace.Three of the most popular forms of international investments are mutual funds, exchange traded funds (ETFs), and American depository receipts (ADRs). And, although mutual funds are a common form of investment, ETFs and ADRs trade much like stocks and therefore take a little more financial knowledge to navigate.

International Protection and Confidentiality

If you’re the type of investor that’s worried about financial scares associated with foreclosures and lawsuits, investing internationally has an added advantage of asset protection. With investing abroad, many foreign financial institutions are able to protect your investments from seizure and other threats.Likewise, investing internationally also comes with confidentiality concerning your finances. International financial institutions are not legally required to divulge your monetary details to anyone. Confidentiality isn’t to say that international investments are exempt from legalities, but they’re entitled to more freedoms.

Investment Growth on an International Level

In terms of household incomes, import/export strengths, younger working populations, and the lean toward free-market economic policies, investing internationally has the potential for more growth than investing in the United States alone, which translates to an increase in return potential in overseas investments.In fact, according to the International Monetary Fund, the United States is expected to fall below the rest of the world for the next two years when it comes to economic growth. Because of this, companies like Fisher Investments Institutional Group are strategizing toward international investments in strong economic climates across the world.

Currency Diversification Strengthens Portfolios

Much like international investing gives your portfolio safety in numbers as opposed to having all assets invested in one country’s economy, so do currency differences from country to country. In relation to the US dollar, many countries across the world have stronger currencies, which helps boost returns over time.The flip side of this coin is the idea that fluctuations in currency strengths can just as easily work against your portfolio as they can strengthen it. It’s wise to keep an eye on international currency rates and how they compare to the US dollar, but never invest solely based on rates as a country’s currency can drop in strength overnight.

A Reduction in Taxes

Otherwise known as tax havens, many countries across the world offer attractive tax incentives to foreign investors. These incentives are meant to strengthen other country’s investing environments as well as attract outside wealth.These tax incentives are particularly attractive to US investors due to the increasingly high taxes in the country. As a result, the United States government is creating more defined restrictions and laws when it comes to international investment tax incentive regulations.

7.

An increase of the ratio of FDI and GDP implies a greater share of FDI thus increase of the level of globalization. FDI flows (inward and outward) as a percentage of GDP indicate the degree of global investment activities of the economy for a given time period and reflects the changes between two periods.

8.

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2019, India received foreign direct investments worth USD 42 billion in 2018. India attracted over 77% of the total foreign direct investments that came to the South Asian region.

• The global FDI slipped by 13% in 2018, to US$1.3 trillion from $1.5 trillion in 2017, the third consecutive annual decline.
• In South Asia, overall, FDI inflows increased by 3.5% to $54 billion. The prospects for FDI inflows into South Asia are largely determined by expectations of growing investment into India.
• Investment in India rose by 6% to USD 42 billion with strong inflows in manufacturing, communication, financial services and cross-border merger and acquisition activities. However, India’s rank as a source country for FDI fell one notch to the 10th position as it was overtaken by Spain.
• Among others in the South Asian region, FDI flows to Bangladesh and Sri Lanka rose to a record level, to USD 3.6 billion and USD 1.6 billion, respectively, while Pakistan witnessed a 27% decline in investment to USD 2.4 billion.
  • Of the 5,400 special economic zones (SEZs) in the world, more than 4,000 are in developing countries in Asia. In the developing countries in Asia, China topped the list at 2,543 such zones, followed by Philippines (528), India (373) Turkey (102), Thailand (74) among others.
• India has recently liberalised its rules on inward investment (an investment that comes into a country from investors who live in other countries) in several industries, including single-brand retail trading, airlines and power exchanges.