Question

Part A)Discuss cost-related motives for direct foreign investments.

Part B) Why do host governments prefer more direct foreign investments?

Answer 1

A) It is one of the important motives in order to reduce the exposure of cost to domestic economic conditions. MNC (Multinational Corporation) may effectively stabilize its total amount of cash flows and risks may be alleviated in a better manner. Hence, it is desirable for minimizing costs of financing the company.

B) The host governments prefer more of direct foreign investments with the reason that higher amount of foreign currency may be accomplished which is quite useful in order to attain stability in the domestic economy as a whole. Furthermore, making investments and earning adequate returns in foreign currency is more helpful for developing nations.