The paper “ The Potential of Indian Market for Investment - Foreign Direct Investment Theories and Environmental Factors" is a persuading example of coursework on finance & accounting. Investing in a different nation requires that the investor investigates and examines various issues so that the risk involved reduces. Doing, so will ensure that the investments are safe and will create an environment where the investor is able to gain maximum returns. The likelihood of conducting such an analysis increases when foreign direct investment is to be made in a country that is totally different from its own country.
This difference could arise due to culture, the political atmosphere, and the way the country forms different rules and regulations. Foreign Direct Investment is “ the investment made by a country into another and is usually for a long period of time” . (FDI, 2010) In our case, foreign direct investment is made from Australia to India. Foreign direct investment also is of there forms. They are as firstly “ inward foreign direct investment, secondly outward foreign direct investment and lastly stock of foreign direct investment” .
(FDI, 2010) Based on relevant theories and the manner in which environmental factors have an influence on foreign direct investment have been provided for. The theories which will help to determine the manner in which foreign direct investment is provided for Foreign Direct Investment TheoriesA look at the various FDI theories will help to determine whether choosing India as a destination for investment is a sound option or not. This will further help in the environmental analysis and will act as a tool to ensure investment is safe. The theories are as follows Capital Market TheoryThis theory states that “ interest rate determines the investment to be made in a foreign country” .
(Fletcher & Brown, 2008) India on the overall basis has been consistent and even the growth rate of 8% shows it. When all other countries are looming into recession India has shown growth at a steady pace and the interest rate offered by them matches their growth rate signifying the return the investment will get. This helps to make India a good destination for FDI. Dynamic Macroeconomic FDI TheoryThis theory states on the fact that “ timing of the investment is very important and it depends on the changes the macroeconomic environment is having” .
(Fletcher & Brown, 2008) On this front, it is seen that India has changed and with a stronger economy and more younger population, it is time that investment flows in. Also, the manner in which the banking reforms have been made and the potential the country shows while competing with developing countries highlights the importance of investing as it is the proper time to do so. Exchange Rate TheoryThis theory states that “ FDI flows and exchange rate changes should be matched to ensure that the value of the currency doesn’ t depreciate” .
(Fletcher & Brown, 2008) It is seen as a common fact in India that Australian Dollars has a higher value compared to Indian Rupees. This states the upper hand the Australian dollar holds. Also, the fact that it is seen in the past that FDI flows don’ t depreciate the value of the currency much is a good sign and calls for a step to invest in India.