PSCI-1102 Lecture Notes - Lecture 24: Moral Hazard, Portfolio Investment, International Finance
4 Nov 2016
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Document Summary
A section of financial economics that deals with the monetary interactions that occur between two or more countries. Concerned with topics that include foreign direct investment and currency exchange rates. Portfolio investment: the investor has only a claim on income; no role in management. Direct investment (fdi): investment in a foreign country via the acquisition of a local facility or the establishment of a new facility. Direct investors maintain managerial control of facilities. Higher rate of return where capital is scarce. Tough to enforce debt in a foreign jurisdiction. The foreign government may do something to reduce the value of the investment. In international investment, there are many common interests among interests among borrowers and lenders, but there may also be major conflicts of interests between the two sides. It makes sense to borrow if the funds can increase the country output by more than it takes to repay the debt.
