Exchange Rate, Foreign Direct Investment, and Entry Issues

Chung Lai Johnny Wan and Yulan Wang
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Chung Lai Johnny Wan: University of Wales Trinity Saint David
Yulan Wang: The Hong Kong Polytechnic University

Chapter 4 in International Operations Management: Concepts and Applications, 2025, pp 55-73 from Springer

Abstract: Abstract In this chapter, exchange rates, foreign direct investment (FDI), and entry modes are discussed. In international operations, currency conversion is almost unavoidable for multinational companies, as they collect payments from customers and pay suppliers in different countries. The first part of this chapter reviews eight common factors influencing exchange rate fluctuations, three types of exchange rate risks, and five risk mitigation strategies. In addition to the exchange rate, purchasing power parity also needs to be considered to understand whether a currency is overvalued or undervalued. The second part of this chapter focuses on cross-border investment, entry modes, and their associated issues. To justify a company’s FDI initiative, two of Dunning’s eclectic paradigms, ownership-locational-internalization (OLI) and the four seeking initiatives, are introduced. Instead of setting up wholly owned subsidiaries, exporting, turnkey projects, licensing, franchising, and joint ventures are other common entry modes. The chapter concludes with a presentation of the six steps to market entry, break-even analysis for investment evaluation, and a win-win FDI example.

Date: 2025
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DOI: 10.1007/978-981-96-6665-2_4

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