Inflation can be explained as a consistent rise in prices of goods and services. Inflation affects the demand for money, exchange rates, and prices of goods and services. It reduces the value of domestic currency and alters the composition of a local currency (Madura, 2005). Reduced value of domestic currency affects an economy’s transaction ability in the international frontier. It implies investing much in a foreign state, but low levels of returns.
With inflation, a country’s exports become less appealing to international traders. This implies fewer sales for local and international investors that create a trade deficit. It makes imports cost more than the value of exports (Madura, 2005). Investing in an economy with high rates of inflation implies trade deficits created by the expensive imports and cheap exports. This leads to massive loss to foreign investors.
Additionally, high rates of inflation weaken a country’s competitive position in the international market. High inflation rates also affect the value of local currency with the price of items being higher than their worth (Madura, 2005). This leads to the depreciation of the exchange rates accompanied by capital outflow and trade surpluses, which may lead to the crumple of an investment.
Effects of GDP and GNI on foreign investments.
GDP refers to the measure of the value of products and services that an economy produces within a given period. It is among the closely and comprehensively watched economic statistic by foreign investors. GNI, on the other hand, refers to the value of GDP added to income received from overseas (Cherunilam, 2006).
GDP and GNI portray the manner in which an economy earns and spends its national income on a regular basis. They have a direct relationship to foreign exchange rate. High GDP and GNI levels imply a stable foreign exchange rate and a proper investment environment for both local and foreign investors (Cherunilam, 2006). Low levels of GDP and GNI may indicate low levels of investment potentiality or low levels of returns.
An economy with high levels of GDP and GNI indicates a strong currency as well as high levels of production and revenue. Foreign investors are mostly attracted to such economies. These economies promise growth in business with minimal interferences such as those caused by economical instabilities, and high inflation levels. GNI and GDP reflect the economic status in an economy (Cherunilam, 2006). Economies with high levels of GDP and GNI reflect market stability, growth, value, and quality. They indicate proper investment environments that attract foreign investors.
The key stakeholders that a business must satisfy.
Stakeholders are parties that are impacted by or have an impact on the operations of a business. They also include parties with strong interests in the effort of political, academic or philosophical reasons. They are characterized by the level of effort in the business as primary, secondary or key stakeholders (Lawrence and Weber, 2014). An organization’s key stakeholders are inclusive of employees, the government, shareholders, suppliers, customers, and the local community.
Stakeholders’ interests are varied and many depending on the needs of an economy. Such needs vary according to economic status, social interest, environment, safety and security needs, environment, and time, amongst others. For companies operating abroad, satisfying all the stakeholders is difficult as a result of differences in expectations of the different stakeholders. The stakeholders may also create a cultural shock, which may affect the running and operations of an international investor (Lawrence and Weber, 2014). Every stakeholder has an interest in the business, and meeting all these interests poses a challenge to international traders.
Cherunilam, F. (2006). International economics. New York: Tata McGraw-Hill.
Lawrence, A. T., & Weber, J. (2014). Business and society: Stakeholders, ethics, public policy.
Madura, J. (2005). International financial management. Mason, Ohio: Thomson.