Major multinational organizations (some of which are listed below) attempt to track the relative movements and magnitudes of global capital investment. Using these web pages and others you may find, prepare a 5-6 paragraph executive briefing on the question of whether capital generated in the industrialized countries is finding its way to the less-developed and emerging markets. Is there some critical distinction between "less developed" and "emerging?"
The Old World Bank
European Bank for Reconstruction
The problem wants you to observe the efforts of the major multinational organizations to track the movement of capital from the industrialized countries to less-developed and emerging countries. Their efforts are well documented on their web sites. Then the problem wants you to analyze the information and decide if investment from developed countries is really moving to the less developed countries or the emerging markets. The perspective of the banks gives the problem a developmental perspective. Usually, when an investment decision is to be made it is a question on the return on investment and only that investment where the return on investment is highest is the investment is made. In international business other factors like the risk, the political situation in that country and the countries reputation for repatriation are factored in. Finally on the basis of these observations the problem requires you to distinguish between less developed countries and emerging countries.
The problem makes several assumptions, which have not been substantiated. First, the problem assumes that it is possible to track relative movements of global capital investment. This is usually not possible; often the movements are deliberately secret and hidden. For instance a multinational consumer goods company may show that it is investing in a production facility in an emerging market, however, larger sums of money are siphoned off as repatriation of consulting charges. Secondly, the development institutions keep a watch on the movement of developmental capital into countries by way of aids and grants. These might be for infrastructure or grants, however, there are leakages and corruption to such an extent, that such investment often gets spent on consumer goods sold by multinational companies and returns to the industrialized countries by way of repatriations. Thirdly, when capital is invested in 'emerging countries' it is very temporary and sometimes within the year, the investment is used as a sponge to siphon off more capital. This leaves the 'emerging markets' ever more bereft of investment. The problem is presuming that there is a distinction between 'less developed' and ...
A discussion of whether capital is moving from industrialized countries to less-developed and emerging countries is given, with definitions of what less developed and emerging markets are. It is about 1,263 words long with references.
1. Determine Gibson's cost of capital and required rate of return for the joint venture in Brazil.
2. Determine the discrete probability distribution of Gibson's Net Present Value for this joint venture and calculate the Expected Net Present Value.
3. Would you recommend that Gibson participate in the joint venture? Explain.
4. What do you think would be the key underlying factor that would have the most influence on the profits earned in Brazil as a result of the joint venture?
5. Under what circumstances might Gibson shift to more equity financing when considering joint ventures like this? What is the minimum required return that would still make this investment worthwhile?
6. When Gibson was assessing this proposed joint venture, some of the managers in the company recommended that it borrow the Brazilian currency rather than using US dollars to obtain some of the necessary capital for the initial investment. They suggested that such a strategy could reduce Gibson's exchange rate risk. Do you agree? Explain.
7. Discuss the benefits of the joint venture from the perspective of Brasilia. What is the maximum amount of money Brasilia should invest?
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