EconPapers    
Economics at your fingertips  
 

FDI, exchange rate and firm's gain in terms of real assets

Ahmed Mehedi Nizam

MPRA Paper from University Library of Munich, Germany

Abstract: Here we argue that the difference between market exchange rate and PPP exchange rate of the local currency unit with respect to the investing one induces gain/loss for the investing firm in terms of ownership of real assets. When the market exchange rate of the local currency unit is greater than its PPP exchange rate, then the foreign investors gain in terms of PPP in the local market, i.e., the foreign investors now get the ownership of more assets than they could probably have in their native land by investing the exact same amount of money. On the other hand, when the market exchange rate is lower than the PPP exchange rate, then the foreign investors incur losses in terms of asset ownership, i.e., they now own less amount of physical assets than they could have alternatively owned if they chose to invest in their native land instead. Building upon the above arguments, here we empirically estimate the regions where US FDI should flow toward in order to reap the maximum benefits arising out of exchange rate differentials and compare it with the actual US investments abroad. The strategy presented here will provide firms a new perspective to gauge their overseas investment opportunities.

Keywords: FDI; market exchange rate; PPP exchange rate; multinational firms; wealth transfer (search for similar items in EconPapers)
JEL-codes: F3 F4 F41 (search for similar items in EconPapers)
Date: 2023-12-28
New Economics Papers: this item is included in nep-int and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/119597/1/MPRA_paper_119597.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119597

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2025-03-19
Handle: RePEc:pra:mprapa:119597