Global Finance
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Define and discuss the concepts and terms below related to Global Finance. Also, provide an example for each in the context of a business setting. Properly cite references.
Foreign Direct Investment (FDI)
Horizontal FDI
Vertical FDI
Balance of trade
Foreign exchange rates
Foreign exchange option
Arbitrage
Risk management
Time value of money
Scenario analysis
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Solution Summary
Define and discuss the concepts and terms below related to Global Finance. Also, provide an example for each in the context of a business setting.
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Foreign Direct Investment (FDI):
Horizontal FDI: Horizontal FDI means foreign direct investment in the same industry that the firm operates within the domestic market; for example, a telecom company operating in USA investing in telecom industry in USA. Basically, the multinational invests in the same business that it pursues in the domestic market.
Vertical FDI: "Vertical FDI, on the other hand, occurs when a multinational decides to acquire or build an operation that either fulfills the role of a supplier (backward vertical FDI) or the role of a distributor (forward vertical FDI)." An example of Vertical FDI will be an American automobile manufacturer acquiring or investing in an auto ancillary or auto component manufacturing company in another country.
Reference: http://www.investopedia.com/ask/answers/06/verticalfdi.asp
Balance of trade: The balance of trade means net exports or exports minus imports. A favorable balance of trade implies more exports than imports whereas negative balance of trade means more imports than exports. For example, if a country imports more than it exports, it has a negative balance of trade. ...
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