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MGT411 - Money & Banking - Lecture Handout 15

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SHIFTS IN EQUILIBRIUM IN THE BOND MARKET & RISK

  • Shifts in Equilibrium in bond market
  • Bond and Risk
  • Default Risk
  • Inflation Risk
  • Interest Rate Risk

Shifts in Equilibrium

An increase in expected inflation:

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MGT520 - International Business - Lecture Handout 31

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FOREIGN DIRECT INVESTMENT

Foreign Direct Investment in the World Economy:

  1. When discussing foreign direct investment, it is important to distinguish between the flow of FDI and the stock of FDI. The flow of FDI refers to the amount of FDI undertaken over a given time period (normally one year). The stock of FDI refers to the total accumulated value of foreign owned assets at a given point in time.
  2. Figure 6.1 illustrates the great increase in the flows of FDI between 1992-2001. The significant growth in FDI has both to do with the political economy of trade as outlined in the previous chapter and the political and economic changes that have been taking place in developing countries.
  3. The opening case on Starbucks helps illustrate one very important trend in FDI - the globalization of the world economy is causing firms to invest worldwide in order to assure their presence in every region of the world.
  4. Another important trend is has been the rise of inflows into the US. The stock of foreign FDI in the US increased more rapidly than US FDI abroad.
  5. The rapid increase in FDI growth into the US may be due to the attractiveness of the US market, the falling value of the dollar, and a belief by some foreign corporations that they could manage US assets and workers more efficiently than their American managers could.
  6. It is difficult to say whether the increase in the FDI into the US is good for the country or not. To the extent that foreigners are making more productive use of US assets and workers, it is probably good for the country.
  7. Figures 6.2, 6.3, 6.4 and 6.5 provide some insight into the countries that have been the major recipients and sources of foreign direct investment in recent years.
  8. The management focuses box details the techniques of Mexican cement manufacturer Cemex for its aggressive international expansion of cement manufacturing. Because cement is a product that is not easily exported due to its low ratio of value to weight, Cemex sought international expansion by acquisition.

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