Japan Foreign Direct Investment Research Paper Example | Topics and Well Written Essays - 1750 words

Japan Foreign Direct Investment - Research Paper ExampleThe behavior of re-sentencing rate on the international capital market has a significant bearing on the quantity of capital resources that can be marshaled by multinational corporations to enable them carry out investments in the host countries.A countrys currency is said to have underg unrivalled depreciation if there is a general fall in the value of the countrys currency relative to the main value of another countrys currency. Within the context of this essay, the Japanese Yen can undergo a depreciation against one of the leading currencies such as the US Dollar or the Euro if its value falls in relative terms to any of them. Suffice to cite a hypothetical illustration to buttress the foregoing point. Should the Japanese Yen fall against the United States Dollar by say 25 percentage points then the almost likely impact is that appeal of production by another hypothetical corporation will be significantly depleteder by 25 %. The resulting low cost of the Yen can serve as an incentive for investment because a would be corporation will have to pay low cost for wages in addition to the prevailing low cost of production relative to what it will be in the United States. This phenomenon of attractiveness due to shift rate differences among countries is known as the relative wage concept (Froot & Stein, 1991).However, this latter assertion ought... llel between the significant changes in the relative costs of production crossways both the United States and Japan and above all this should not in any way be altered by any overt or covert changes in either the cost of production or the wages in Japan where this investment will be taken place.In addition, the overall relevance of the relative wage factor will become negligible in the event of an advent of an anticipated movement in exchange rate. This has to do with either a direct or indirect rise in the cost of carrying out an investment in the host nation in this guinea pig which is Japan. The point that should be noted here is that in the most conventional form the factors that fulfill the interest rate parity are consistent with risk-adjusted rates of return in both the United States and Japan. Any shift in any of the above mentioned factors can change the entire course of a impertinent direct investment stream. In a deeper sense the effects of changes on the foreign exchange market on investments are more profound on multinational corporations. Citing again the instance of a decline in the value of the currency of the host country relative to the investing source country, it is worth stating that should this incident of depreciation in the value of the host countrys currency then the potential impact can be a significant rise in the wealthiness of the multinational corporation in relation to the host country. By this leverage the investing multinational corporation is better placed to engage in stout bidding for assets in th e home country in view of the fact that it has relatively stronger capital base to engage in these activities. Of course saying this is an quotation of illustrations presented in the preceding chapter with regards to wages and cost of production and how