Japan Foreign Direct Investment Research Paper Example | Topics and Well Written Essays - 1750 words

Japan Foreign Direct investment - Research Paper ExampleThe behavior of exchange rates on the international capital securities industry has a significant bearing on the quantity of capital resources that can be marshaled by transnational corporations to enable them carry out investments in the host countries.A countrys currency is said to have underg one derogation if there is a general fall in the treasure of the countrys currency congeneric to the main value of another countrys currency. Within the context of this essay, the Nipponese Yen can undergo a depreciation against one of the leading currencies such as the US Dollar or the Euro if its value falls in relative terms to any of them. Suffice to cite a hypothetical illustration to buttress the foregoing point. Should the Japanese Yen fall against the United States Dollar by say 25 percentage points then the near likely impact is that terms of mathematical product by another hypothetical corporation will be significantl y lower by 25%. The resulting low cost of the Yen can serve as an incentive for investment because a would be corporation will have to pay low cost for leases in addition to the prevailing low cost of outturn relative to what it will be in the United States. This phenomenon of attractiveness due to exchange rate differences among countries is known as the relative wage concept (Froot & Stein, 1991).However, this latter assertion ought... llel between the significant changes in the relative costs of production across both the United States and Japan and above all this should not in any way be altered by any overt or covert changes in either the cost of production or the wages in Japan where this investment will be taken place.In addition, the boilersuit relevance of the relative wage factor will become negligible in the event of an climax of an anticipated movement in exchange rate. This has to do with either a direct or mediate rise in the cost of carrying out an investment in the host nation in this gaffe which is Japan. The point that should be noted here is that in the most conventional form the factors that fulfill the fill rate parity are consistent with risk-adjusted rates of return in both the United States and Japan. either shift in any of the above mentioned factors can change the entire course of a unconnected direct investment stream. In a deeper sense the effects of changes on the foreign exchange grocery on investments are more profound on multinational corporations. Citing again the instance of a rule out in the value of the currency of the host country relative to the investing source country, it is worth stating that should this event of depreciation in the value of the host countrys currency then the potential impact can be a significant rise in the wealth of the multinational corporation in relation to the host country. By this leverage the investing multinational corporation is better placed to engage in broad-shouldered bidding for assets in the home country in view of the fact that it has relatively stronger capital free-base to engage in these activities. Of course saying this is an extension of illustrations presented in the preceding chapter with regards to wages and cost of production and how