Financial Liberalization refers to deregulation of domestic financial market and liberalization of the capital account that implies removing the ceiling on interest rates. When it is in a liberalized system the competition between the different lending institutions for the deposits will increase interest rates on deposits which will increase the deposits. The availability of credit will increase and this will cause an increase in investment growth. The stages of growth increases activity in the financial markets that makes the introduction and the development of financial institutions. It is argued that financial institutions, by gathering and evaluating information from borrowers, allow the allocation of funds for investment plans to become more efficient and therefore encourage growth and investment. Banks have a role in the process of development. These banks gives the chance for individuals to hold their savings in the form of deposits, so lowing the need to hold them in Continue reading
Global Investment Management
Trends in Foreign Portfolio Investments
While Foreign Portfolio Investment (FPI) has traditionally been concentrated in developed markets, new interest has been sparked by the so-called “emerging” capital markets. The emerging markets have at least three attractive qualities, two of which are their high average returns and their low correlations with developed markets. Diversification into these markets in expected to give higher expected returns and lower overall volatility. Many individual investors, as well as portfolio and pension fund managers, are reexamining their basic investment strategies. In the last decade, fund managers realized that significant performance gains could be obtained by diversifying into high-quality global equity markets. These gains are limited, however, by the fairly high cross-correlations returns in these markets. The resulting investment strategy reflects current information. In terms of portfolio theory, adding low-correlation portfolios to an optimized investment portfolio, enhances the reward-to-risk profile by shifting the mean-variance frontier to the left. The portfolio optimization problem Continue reading
Transnational Corporations (TNCs) and Foreign Direct Investment (FDI) Decisions
Knowledge-intensive production, technological change, shrinking economic space greater openness have also changed the context for Transnational Corporations (TNCs). There are new opportunities and pressures to utilize them. The opening of markets creates new geographical space for TNCs to expand in and access tangible and intangible resources. It also permits wider choice in the methods firms can use (FDI, trade, licensing, subcontracting, franchising, partnering and so on) to operate in different locations. At the same time, advances in information, communication and transportation technologies, as well as in managerial and organizational methods, facilitate the trans-nationalization of many firms, including SMEs. The combination of better access to resources and a better ability to organize production trans-nationally increases the pressure on firms to utilize new opportunities, lest their competitors do so first and gain a competitive advantage. Competition is everywhere – there are fewer and fewer profit reservations and market niches that remain protected Continue reading