Exchange Rate Uncertainty and Firm Investment Plans PDF Download

Author: Garret Binding
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Garret Binding
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: José Campa
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 312

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Author: Alexandre Jeanneret
Publisher:
ISBN:
Category :
Languages : en
Pages : 44

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This paper proposes a real options theory to explore the effect of exchange rate uncertainty on foreign direct investment. Firms face the choice between serving foreign markets through exports and investing abroad to relocate production. The model predicts that the most productive firms invest abroad when exchange rate volatility is low and export otherwise, whereas the least productive firms invest abroad when volatility is high. The aggregation over heterogeneous firms produces a negative and non-linear relation between exchange rate uncertainty and total international investment. An analysis of 75 developed and emerging economies over the period 1996-2012 provides empirical support for the model's prediction.

Author: José Manuel Campa Fernández
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 312

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Author: Robert S. Pindyck
Publisher: World Bank Publications
ISBN:
Category : Capital investments
Languages : en
Pages : 58

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Irreversible investment is especially sensitive to such risk factors as volatile exchange rates and uncertainty about tariff structures and future cash flows. If the goal of macroeconomic policy is to stimulate investment, stability and credibility may be more important than tax incentives or interest rates.

Author: Mark P. Taylor
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 48

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We empirically investigate the real effects of exchange rate risk on investment activities of international firms. We provide cross-country, firm-level evidence that greater unexpected currency volatility leads to significantly lower capital expenditures. The effect is stronger for countries with higher economic openness and for firms that do not use currency derivatives to hedge. We empirically test the implications of two potential mechanisms: Real options and precautionary savings. Our findings are consistent with both explanations. Two historical events in the FX markets strengthen the identification of our results.

Author: R.L. Crum
Publisher: Springer Science & Business Media
ISBN: 9401174083
Category : Business & Economics
Languages : en
Pages : 246

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The business environment, particularly after the continuing oil crises of the seventies, can be characterized as evolving rapidly in complex and often unpre dictable ways. Such things as high interest and inflation rates, fluctuating ex change rates, volatile commodity markets, and increasing political turmoil have led to a situation in which explicit consideration of environmental dynamics is becoming much more important for successful business planning than was true in the past. Companies are finding that it is no longer possible to conduct "busi ness as usual" under these changing circumstances. Rather, decision makers are having to be more cognizant of the many sources of uncertainty that could have serious impacts on the continued prosperity of the firm, as well as of actions that can be taken so that the company can thrive in spite of these greater uncertainties. Businesses have responded to these challenges by giving more thorough con sideration to strategic issues. Whereas in the past the steady progression of mar kets and technology was taken for granted, the uncertainties associated with increased worldwide competition, as well as with other exogenous factors, have vii viii INTRODUCTION forced companies to think more about flexibility. This involves not only how best to exploit profitable current options, but also how to position themselves at present to be able to respond appropriately to threats and opportunities as they arise in the future. Unfortunately, in this redirection of outlook, the fmance profession has not kept pace.

Author: Sangcheol Song
Publisher:
ISBN:
Category : Investments, Foreign
Languages : en
Pages : 127

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Abstract: In this dissertation, we show that the geographic and ownership configurations of foreign direct investment have different theoretical implications for growth and switching options under different types of host country uncertainty. The literature has not taken this into account, which may explain the mixed and inconclusive results of prior studies on the real options value of international investments. Using a panel data of Korean foreign direct investment during the period 1991-2004, a period encompassing varying conditions of uncertainty in host countries, we find that firms with switching options (gained through highly dispersed operations and higher level of ownership across countries) were associated with higher value than those without such options in periods of higher uncertainty of exchange rates within international network. We also find that firms with growth options (gained through concentrated presence of subsidiaries and lower level of ownership within international network) were associated with higher value than firms without such options in conditions of host economic uncertainty. Additionally, we found the evidence to be consistent with the argument that cultural distance imposed significant additional costs that reduced the value of breadth to the firm. In this case as well, higher ownership helped to mitigate these adverse effects of cultural distance. Finally, we examined the firm's decision to add to its portfolio of investments in order to assess whether or not the firm made ongoing decisions on the basis of its flexibility needs. We found evidence that firms facing exchange rate uncertainty enhanced the breadth of their FDI portfolio, consistent with the desire to gain switching options. On the other hand, firms facing host market uncertainty tended to enhance the depth of their FDI portfolio, consistent with the desire to gain growth options.

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498330282
Category : Business & Economics
Languages : en
Pages : 132

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