Question

Historically the most common reason for 'going' global was an effort to follow clients and customers as the world economy developed in the 18th and 19th centuries. In this the early part of the 21st Century if you were considering in an investment abroad what would be some of the economic and financial elements that you would look at in making a decision?

Answer 1

The economic and financial elements to look into for investment abroad are as follows.

Economic

• Political stability - The change in government regimes bring a change in the investment policies of the government. While some may have favourable investment policies by having a low tax rate. This can also be further elaborated with the tax rates and the FDI (Foreign direct investment) policy
• Growth rate - The growth rate of the country in the form of GDP is one of the major factors for investment in other countries. Investment is preferred usually in developing countries as they give a higher return as compared to other developed economies.
• Sectors for growth - Some economies have a particular sector where the entire growth is dependent on, however this can be a high risk investment as compared to the return as a small disruption in the economy can disturb the entire process and directly affecting the return.

Financial

• Exchange rate - One of the most important factor for foreign investment is exchange rate, as the exchange rate is determined by the inflation in the country. A country with rising inflation can decrease the return due to increase in exchange rate (Eg. Hyperinflation in Venezuela)
• Historical returns - while the economy is in a growing stage the past returns of foreign investment can be a good indicator of the future return as the growth rate cannot be very high as compared to the average historical return
• Interest rate - The interest rate on investment can be useful for investment decisions as a high interest rate would also bring a higher risk and vice versa.
• Liquidity - The more liquid the market is the better the chance of getting the investment principal back as and when required.
• Bond & Equity market - The current bond and equity market performance of the country can also be a good factor to determine the investment in the country. A low volume in the equity market can be helpful to determine the liquidity crunch in the economy
• Banks and Financial institution - The autonomy of the financial institutions is also a factor to consider as a stability in these institutions can be assuring of the safe guarding of your investment. Failure of banks or financial institutions lowers the investors confidence in the country for any future investment.