©2012 McGraw-Hill Ryerson Limited 1 of 30 Learning Objectives 1.Identify reasons for a foreign investment decision (later analyze). (LO1) 2.Examine the.

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©2012 McGraw-Hill Ryerson Limited 1 of 30 Learning Objectives 1.Identify reasons for a foreign investment decision (later analyze). (LO1) 2.Examine the effects of exchange and political risk on the foreign investment decision. (LO2) 3.Assess the effects of exchange rates on the firm’s profitability and cash flow. (LO3)

©2012 McGraw-Hill Ryerson Limited 2 of 30 Figure 21-1 World’s leading merchandise exporters, 2009 LO1 Source: Top twelve: 57% of world total of $12.5 trillion. US: commercial services adds $3.4 trillion.

©2012 McGraw-Hill Ryerson Limited 3 of 30 Figure 21-2 World’s leading merchandise importers, 2009 LO1 Source: Top twelve: 58% of world total of $12.7 trillion. US: commercial services adds $3.1 trillion.

©2012 McGraw-Hill Ryerson Limited 4 of 30 Figure 21-3 Canada’s 2010 merchandise exports and imports by region LO1 Note: Merchandise: Exports $404 billion, imports $413 billion, GDP $1,653 billion. Source: Reprinted with permission of Bank of Canada, Banking and Financial Statistics, July 2011, series J3.

©2012 McGraw-Hill Ryerson Limited 5 of 30 Figure 21-4 Canada’s international balance of payments, current account, 2010 LO1 Source: Reprinted with permission of Bank of Canada, Banking and Financial Statistics, July 2011, series J1.

©2012 McGraw-Hill Ryerson Limited 6 of 30 Figure 21-5 Canada’s international investment position, 2010 LO1 Source: Statistics Canada, Catalogue No , Table 1.

©2012 McGraw-Hill Ryerson Limited 7 of 30 Figure 21-6 Canada’s investment abroad by region, 2010 (assets) LO1 Source: Statistics Canada, Catalogue No , Tables 1, (Other includes loans and deposits.)

©2012 McGraw-Hill Ryerson Limited 8 of 30 Figure 21-7 Foreign investment in Canada by region, 2010 (liabilities) LO1 Source: Statistics Canada, Catalogue No , Tables 1, (Other includes loans and deposits.)

©2012 McGraw-Hill Ryerson Limited 9 of 30 Reasons for a Capital Investment Decision Higher potential returns -Lower production costs due to: resource availability and ease of exploitation significantly lower wages -Better revenues due to: Larger and more concentrated markets -Lower corporate income tax rates -Delayed Canadian taxes on income Strategic advantages Broader diversification possibilities LO1

©2012 McGraw-Hill Ryerson Limited 10 of 30 Multinational Corporations (MNCs) Firm doing business in more than one country Often 30% or more of a firm’s business activities are carried out outside its national borders 4 basic forms of multinational corporations: 1.Exporter 2.Licensing Agreement 3.Joint Venture 4.Fully Owned Foreign Subsidiary LO1