schweser book 2: question 6 at p140 According to the question, the invesment decision will be based on following facts pros: 1. the country’s economic growth (both LTG and STG) is significantly greater that of developed markets; 2. low tax rates 3. appreciating local currency 4. stable political environment 5. high quality educational system cons: 1. restrictive business environment 2. heavy government involvement/interfere in the business activities 3. marginal deficit (5% of GDP) funded by borrowing 4. high tariffs to protect local businesses schweser votes not to invest in the country based on cons, but i tend to say yes from both upside potentials and diversafication effects. what do you guys think about this one?
Can you post the original question?
it’s a very long essay type of question that covers two pages. do you use schweser?
ya, i’ll look it up when i get home tonight.
This is one of those subjective answer questions but i agree with schweser. the govenment actions in this quesiton are not condusive to foreign investment due to tarifs, governemnt involvement etc. The control premium is very valuable and as a foreign investor you don’t get any of that with the country described in the quesiton. instead you get a minority position where the rules could chnage any second, and the government has demonstrated through past actions it will step in. my interpretation is the risks do not justify the rewards.
make sense. thanks