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Study On FDI Project Investment Model With Application Considering Background Risk

Posted on:2015-07-30Degree:MasterType:Thesis
Country:ChinaCandidate:Y SunFull Text:PDF
GTID:2309330482957312Subject:International business
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Since China implemented reform and opening up policy, China’s economy and the global economy have more integration, the trade and economic cooperation between China and foreign country are strengthened gradually. With the increase numbers of foreign enterprises making FDI in China, a lot of Chinese enterprises are also going aboard to make FDI in other country. The fields that China’s FDI project investments involved are very wide, and the types of enterprise are diversified. When these enterprises go out, they will encounter different sorts of influence factors. This paper will study the influence of background risk on FDI project investments.FDI project investments are influenced by the project risks and background risks together. Project risk refers to any uncertainty associated with the project under consideration; background risk refers to any exogenous uncertainty that impacts the decision maker’s final wealth. There are two kinds of background risk, additive background risk and multiplicative background risk. The interactions between risks are complex, it needs us to analyze it by building a model. Background risk will affect investors’ investment behavior, if investors ignore these risks may lead to a different investment results, so it is important to study the effect of background risk.In previous studies, people often assume risks are independent of each other, but in reality, the background risk tend to have connections with project risk, the correlation will affect FDI project investment behavior of investors. This paper studies how the relations between additive background risks and project risk will affect the investment scale and investment returns, and how the relations between multiplicative background risks and project risk will affect the investment scale and investment returns. In this paper, we build a FDI project investment model which includes both additive and multiplicative background risks, we change the relations between background risks and project risk, then study the impact of background risk. In this paper, we use a wind power company named L-POWER which will make FDI project investment in South Africa as realistic background, study the relations among profits risk of new project, exchange rates and previous commitments. Then use Monte-Carlo method to do simulation calculation, use @Risk software to generate random variables which can represent risks, then analysis the result, get the general conclusion. Study the behavior of investment in this case.When additive or multiplicative background risk comes alone, its different relations with project risk lead to different results. When they come together, we use L-POWER company to do the case study, the relations between exchange rates and profits risk of new project is in a dominant position, and the result is much more complicated. The analysis of investment behavior under different relations will play a guiding role for investors.
Keywords/Search Tags:FDI, project investment, background risk, investment model
PDF Full Text Request
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