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Chapter 18
Foreign Direct Investment and International Capital Budgeting
Objectives
• To discuss the characteristics and development of FDI.
• To outline the theories of FDI.
• To describe the techniques of international capital budgeting.
• To examine the implications of taxation, country risk and transfer prices for international capital budgeting.
Copyright ª 2004 McGrawHill Australia Pty 2 Ltd
PPTs t/a International Finance: An Analytical
Definition
• An investment project is classified as direct investment if the investor acquires ‘significant control’ over a firm.
Copyright ª 2004 McGrawHill Australia Pty 3 Ltd
PPTs t/a International Finance: An Analytical
What is ‘Significant Control’ ?
• Ownership of 1025%
• United States, Japan and Australia: 10%
• France, Germany and United Kingdom: higher threshold
• Belgium and the Netherlands: no specific number
Copyright ª 2004 McGrawHill Australia Pty 4 Ltd
PPTs t/a International Finance: An Analytical
Reasons for Interest in FDI
• Rapid growth and changing pattern of FDI
• Concern about causes and consequences of foreign ownership
• FDI channels resources to developing countries
• The role played in transforming ex communist countries
Copyright ª 2004 McGrawHill Australia Pty 5 Ltd
PPTs t/a International Finance: An Analytical
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