International Capital Flow Directly Depends On A Country 's Financial Situation And Level Of Development

1741 Words Oct 18th, 2015 7 Pages
2.3.2 Fixed Currency
Albuquerquw, Loayza, and Serven (2005) have determined that international capital flow directly depends on a country’s financial situation and level of development. Abadie and Gardeazabel (2007) agreed that the stock markets are the main source of FDI, it is well known. But foreign firms that have been purchased through the stock market are in desperate need of financial services. This way, as a prospective investor makes decisions regarding his investments, he will be able to take into account the country’s financial development and banking development, and determine how such factors will ultimately affect their investments According to Campa (1993) as with all investments, there is always a potential risk involved. However, exchange rates are a primary concern with FDI and fluctuations can have a huge effect on potential investments. Therefore, if a company is potentially prone to risk, they may want to avoid investments in certain countries with high vitality. With regard to the economy of Saudi Arabia, it has been the impacted by terrorism on number of economic sectors. Relating to exchange rates, it has been decreased the exchange rate of Saudi riyal next to the currencies of major trading partners. Along with the reason for this the peg to U.S. dollar, which has been suffered to steady decline against major currencies since the U.S. occupation of Iraq and Afghanistan with an estimated decline of the dollar by more than 35 per cent.…
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