(a)Briefly explain the reasons that MNCs engage in direct foreign investment.

(b)The BLUE NET co. in Colorado plans to invest in a new project in either the U.S or Singapore. The new project will take up 40% of the investment funds . The remainder will be devoted to the expansion of its existing business in Colorado. The characteristics of the new project are forecasted for the next 3 years and are stated below:

                                                                                      Existing                    If located in

                                                                                      Business                 U.S           Singapore

Mean expected annual return on investment         10%                    15%                 15%

Standard deviation of expected returns                    0.08                   0.06                 0.11

Correlation of returns to Existing Business                 -                         0.80              - 0.45

Given these characteristics, where should BLUE NET co. locate the new project if the goal is to maximize the steady flow of revenue from its investment?

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Foreign direct investment FDI means companies purchase capital and invest in a foreign country Factors affecting foreign direct investment 1 Wage rates A major incentive for a multinational to invest ... View the full answer