Global Finance: Interest Rates & FDI PDF

REVIEWER FOR GLOBAL spending and borrowing will FINANCE increase. Lesson 1: Interest Rate & Its Impact to Higher Interest Lower Interest Countries and Economies...

REVIEWER FOR GLOBAL spending and borrowing will FINANCE increase. Lesson 1: Interest Rate & Its Impact to Higher Interest Lower Interest Countries and Economies Rate Rate Attract foreign Defers foreign Bank Rate / Interest Rate investors seeking investors. Pertains to the interest rate of the higher returns. nation’s central bank uses for lending money to domestic banks. Demand of the Demand of the Often in the form of a very currency increases. currency short-term loans. decreases. Imports become Imports become Central Bank - manages the interest rates cheaper. more expensive. as a form of intervention to affect economic activity. Exports become Exports become expensive. more cheaper. Monetary Policy The control of the money supply of Carry Trades - an investment strategy that the nation. involves borrowing money in a currency with Set of tools used by the nation’s low interest rate. central bank to control the overall money supply. The goal is to profit from the difference Revisiting or amending interest in interest rates while hoping for rates. favorable exchange rate movements. Change in the monetary policy influenced by the nation’s gross Volatility - a term to change rapidly and domestic product (GDP) and interest unpredictability. policy. Currency Volatility - the frequency and 2 Types of Monetary Policy extent of changes in a currency’s value. It is 1. Contractionary Policy measured by calculating the dispersion of - Equal to an increase in the exchange rate changes around the mean, interest rates expressed in terms of daily, weekly, monthly - Limit the outstanding money or annual standard deviations. The larger supply to slow growth and the number, the greater the volatility over a decrease inflation. period of time.​ 2. Expansionary Policy - Equal to a decrease in the CASE STUDY: interest rates. Japanese Yen Collapse - Allow growth and economic The Japanese Yen is one of the growth as savings will become most heavily traded currencies in the less attractive, and consumer world, ranked third just only behind the US Dollars and Euro.​  With the Japanese Yen covered by a very low interest rate that is on a Why Brazil? negative percentage for 3 decades Largest Economy in Latin America already, the currency is made and Top 10 in the world​ popular for carry trades where Yen is Diversified Economy​ being used to purchase other Large and Varied Consumer Market​ currencies with higher yields. Abundant Natural Resources​ Buy low and sell high. Incentives are given to investors in Brazil​ Lesson 2: Foreign Direct Investments Expanding Infrastructure​ (FDI) Reforms and Legal Frameworks Foreign Direct Investments (FDI) Why is Brazil one of the top receivers of Refers to an ownership stake in a FDI? foreign company or global project ➔ Brazil’s GDP is around 2.2 trillion made by an investor, company, or dollars in 2023, occupying ninth place. government from another company. In conclusion, the economy is alive, Used to describe a business people are willing to spend, and the decision to acquire a substantial money is circulating. stake in a foreign business or to buy ➔ Sectors such as agribusiness, tourism, it outright to expand operations to a energy, mining, technology, and new region, manufacturing are robust. A key element in international ➔ The Brazilian territory has 6 biomes economic integration. (Amazon, Caatinga, Cerrado, Government regulations are also a Atlantic Forest, Pampa, Pantanal), factor that needs to be considered. making Brazil rich in natural resources, Frequently, it goes beyond mere including oil, iron ore, and vast capital investment. agricultural lands. It may also include the provision of ➔ Incentives are given to investors by the management, technology, and Brazilian government such as tax equipment. exemptions, subsidies, and facilitation The better the regulations, the more of bureaucratic procedures. attractive the country to investors. Incentives in Brazil: 1. Inova Simples and Simples Nacional Top Receivers Top Providers - programs are examples of incentives USA USA that aim to stimulate innovation and entrepreneurship, including the China China creation, formalization and Australia Australia development. Canada Japan 2. Inovar-Auto Programa - aims at improving technological development Brazil Germany and energy efficiency.  insurance adjustment, lending, 3. Consulta Publica Ex-Tarifario - which financing, or investment companies; enables increased innovation by however, foreign investors are companies through a temporary prohibited from owning stock in reduction in the rate of tax on the such enterprises, unless the import of capital goods. investor's home country affords the same reciprocal rights to Filipino 4. Renai - which provides information on investors. business opportunities in Brazil. Foreign banks are allowed to Republic Act No. 7042 - also known as the establish branches (no more than Foreign Investments Act of 1994, which six) and can own up to 100 percent regulates the foreign investments in the of the voting stock of locally Philippines. It allows foreign investors to incorporated subsidiaries. Ownership invest up to 100% equity in domestic market caps apply to foreign non-bank enterprises. investors, whose aggregate share should not exceed 40 percent of the What’s Up Philippines? total voting stock in a domestic The Foreign Investments Negative List commercial bank and 60 percent of the (FINL) - a list of areas that set limits for voting stock in a thrift/rural bank. foreign ownership. LIST A - consists of areas of What’s Up Costa Rica? investment reserved only for Openness To, and Restrictions Upon, Philippine nationals. It also restricts Foreign Investment foreign ownership in some of these investment areas to a maximum of Costa Rica actively courts FDI, placing 40%. a high priority on attracting and LIST B - indicates limits in foreign retaining high-quality foreign ownership for reasons of security, investment. The Ministry of Foreign defense, risk to health and morals, Trade (COMEX) leads Costa Rica's and protection of SMEs. The investment promotion efforts, which are standard setup of Filipino and foreign executed through PROCOMER. Costa ownership is 60% / 40%, with Rica has had great success over the Filipinos owning the larger share. last several decades in attracting and retaining investment in specific areas, The minimum investment currently services, advanced requirement for foreign retailers is manufacturing, life sciences, light USD 500,000 and the per-store manufacturing, and the food industry. investment requirement is USD In addition, the Tourism Institute (ICT) 200,000. In practice, retail trade attends to potential investors in the enterprises with capital of less than tourism sector. Costa Rican institutions USD 500,000 are still reserved for are strong and effective guides and Filipinos. The Philippines allows up advocates for their client companies, to full foreign ownership of prioritizing investment retention and  maintaining an ongoing dialogue with 2. Vertical - a business expands into a investors. foreign country by moving to a different Costa Rica is the oldest continuous level of the supply chain. In other democracy in Latin America and the words, a firm conducts different newest member of the Organization activities abroad but these activities are for Economic Cooperation and still related to the main business. Development (OECD), with an established government institutional 3. Conglomerate - a business acquires framework, and a diversified an unrelated business in a foreign upper-middle-income economy. The country. This is uncommon, as it country's well-educated labor force, requires overcoming two barriers to relatively low levels of corruption, entry: entering a foreign country and geographic location, living conditions, entering a new industry or market. dynamic investment promotion board, and attractive free trade zone 4. Platform - a business expands into a incentives all appeal to investors. foreign country but the output from the Foreign direct investment inflow in foreign operations is exported to a third 2022 as estimated by the Costa country. This is also referred to as Rican Central Bank was USD 3.045 export-platform FDI. billion, or 4.45 percent of GDP, with the United States accounting for Advantages of FDI for Businesses: USD 2.23 billion (73 percent of total Market diversification FDI). Costa Rica recorded 4.3 percent Tax incentives GDP growth in 2022 as it recovered Lower labor costs from the effects of the Covid-19 Preferential tariffs pandemic. Subsidies Methods of Acquiring FDI: Advantages of FDI for Host Country: 1. Acquiring voting stock in a foreign Economic stimulation company​ Development of human capital 2. Mergers and acquisitions​ Increase in employment 3. Joint ventures with foreign Access to management expertise, corporations​ skills, and technology 4. Starting a subsidiary of a domestic firm in a foreign country​ CASE STUDY: Intel in Costa Rica 4 Types of Foreign Direct Investments: Costa Rica offered highly important 1. Horizontal – a business expands its factors for expansion and growth for domestic operations to a foreign investors such as solid and existing country. In this case, the business tax exemptions for any firms conducts the same activities but in a satisfying certain conditions under foreign country. the free economic zone schemes.​ The high educational level of the labor force​, a stable political  scenario​, and a corruption-free Our educational system has government were present in Costa resource gaps that have led to low Rica. levels of Science and Technology Shortcomings in infrastructure graduates. I am told that for every services, especially roads, ports, one master's degree graduate we and the airport, are mentioned as produce, Vietnam produces six, major drawbacks in Costa Rica.​ Thailand 25, and Singapore 200. Intel mentioned these as issues that Out of our 430,102 college need to be addressed by the graduates last year, engineers and government.​ technology- related graduates ‘Intel was reconsidering some constituted 13 percent, IT 9.5 investments after potential percent, business 21.5 percent, bottlenecks were discovered in the medicine and nursing 19 percent. I telecommunications and electricity am afraid to ask the percentage services’​ accounted for by those who took up ‘A fundamental point, also law. emphasized.., is that the Costa Rican government did not promise Intel any special benefits, fiscal, or other; rather, it offered existing advantages that any other foreign investment under similar conditions could contain’ Intel Left the Philippines Intel left the country last 2009. One primary reason of the abandonment is the high electric prices in the country. Could it be because our Science and Technology environment remains poor? High tech companies like Intel need more than fiscal incentives. They need a good S and T environment to support their human resources needs as well as continuing research and development (R&D). Our science and technology environment and educational system cannot support the technical brainpower requirements of a high tech company like Intel.