China The Foreign Direct Investment Flow
Essay
China has emerged as one of the largest
investors among growing economies.
According to Statista Research Department’s
(SRD, 2021) report, Chinese enterprises
invested 38 billion US dollars in US firms in
2020. From 2015 to 2016, foreign direct
investment (FDI) increased considerably
(SRD, 2021). China’s infrastructural initiative
is spreading, resulting in developments in
various parts of Asia and Africa. However,
due to the lesser size of the intended
markets, these flows have not yet reached
the levels of the US. The UN’s World
Investment (2020) noted that China is the
second-largest FDI flows and stock
generators in 2018. Aside from FDI, the
nations are united by billions of dollars in
trade, mainly involving interlinked supply
chains in which intermediate commodities
are moved before a finished product is
delivered to customers. Overall, this close
bilateral tie does not guarantee a political
alliance.
According to Congressional Research Service
(CRS, 2021), “net US FDI flows to China in
2019 were $7.5 billion (up 20% from 2018)
while net FDI flows from China into the US
were $4.3 billion (up 168% from 2018, but
down from the $18.0 billion level registered
in 2016)” (p. 2). Moreover, the stock of US
FDI in China was $116.2 billion (a 6% rise
from 2018), whereas the stock of Chinese FDI
in the US was $59.0 billion (a 6% increase)
(CRS, 2021). Therefore, the FDI flows and
stock from the US into China are significantly
higher.
China’s OFDI has garnered spectacular but
sometimes baseless media coverage
regarding its extent and reaches due to
beliefs that China’s OFDI is monetarily
enormous, geographically broad, and
politically threatening. In essence, this has
created political hurdles for China’s US
investors, with most forced to down their
tools and move to other favorable markets
like Africa. Generally, the American
authorities are hesitant to allow investment
beyond certain limits due to fear of illicit
financial risks.
China’s Belt and Road Initiative (BRI) is the
largest FDI project in the US. BRI creates
employment for millions of Americans and
significantly improve the infrastructure. The
program also contributes to the national
revenue through tax. However, BRI is a
threat to the growth of local corporations
and startups in the construction industry.
Overall, BRI is beneficial to the US economy
since the advantages outweigh the
disadvantages.
References
Congressional Research Service (CRS).
(2021). U.S.-China investment ties:
Overview. Web.
Statista Research Department (SRD).
(2021). FDI from China in the U.S. 2000-2020.
Statista. Web.
United Nations Conference on Trade and
Development (UNCTAD). World investment
report 2020. Web.
Investment Policy Committee’s
Recommendations Essay
IPC defines and enforces the firm’s investing
philosophy based on diversity, quality, and
long-term thinking. The IPC delivers
investment and financial strategy guidance,
establishing standards that the management
can use to generate customized proposals
and plans for their objectives. The
recommendations for this pension firm
include investing in companies that operate
in the Sterling pound, setting portfolio limits
and finally, buying stock in a diversified
market.
The money management firm should invest
in companies that operate solely in Sterling
pounds to hedge the risk. One approach to
mitigate this risk is to use the currency swap
market (Segal, 2021). According to Segal
(2021), currency swaps protect against the
danger of susceptibility to exchange rate
changes while ensuring foreign funds’
reception and achieving greater lending
rates. Currency swaps are made up of
theoretical principles that are swapped at
the start and end of the contract. Essentially,
this capital is never returned; it is utilized to
compute interest rate repayments. Despite
the current economic crisis and sanctions,
the Sterling pound has continued to rally
high against the Euro and Dollar. The
GBP/USD exchange rose sharply from the
North American open and aimed to reclaim
the 1.36 level (Skinner, 2022). Furthermore,
Sterling has seen a long-term change in
currency pricing. One would think that the
world’s strongest economy would have the
world’s strongest currencies, but this is not
necessarily the case. Generally, the pound is
more valuable than the US dollar because
long-term fluctuations in currency prices are
more significant than exchange rates.
Another recommendation is to limit the
maximum amount of investment in the
portfolio (portfolio limit). Despite the risks,
the money management firm invests 10%
equivalent of $ 100,000,000, in foreign
companies that deal solely with the
Eurozone. Modern portfolio theory (MPT)
excels at supplying the statistics needed to
diversify and extract the most efficient
risk/reward from the current market
(Lukomnik & Hawley, 2021). Regulators can
constrain the range of allocation techniques
available to individuals tasked with pension
fund management obligations by placing
quantitative restrictions on investment. For
instance, the IPC can suggest a cut of 5% to
the current amount so that only $50,000,000
is invested, thus, limiting the risks. They can
also diversify by incorporating nations
operating various currencies instead of the
single Euro. Maximum levels of investment
(ceilings) may be included in legal rules to
the degree that they are compatible with
and support the prudential principles of
liquidity, stability and profitability.
Additionally, a checklist of accepted or
suggested financials, exchange rates and
assets can also be included in provisions.
Overall, certain types of operations may be
carefully controlled within this context.
The last recommendation for the money
management firm is to buy foreign stocks in
a diversified portfolio. The most
straightforward and general approach to
investing in international markets is
purchasing exchange-traded funds (ETFs) or
mutual funds that carry worldwide equities
and bonds (Kuepper, 2021). Essentially,
these give the portfolio a rapid and highly
diverse global element by owning overseas
assets across various nations and sectors in a
single trade.
In brief, the money management firm can
hedge the risk by shifting to a new currency,
limiting their current portfolio and
diversification. Due to the obstacles,
international investing might be difficult.
Nonetheless, most financial advisors urge
that investors diversify their investments
with at least some global equities and
remain open to change. Generally, this will
spread the risk and enable the company to
adapt to the economic crises.
References
Kuepper, J. (2021). The best ways to invest in
foreign markets are with ETFs and ADRs. The
Balance. Web.
Lukomnik, J., & Hawley, J. P.
(2021). Examining the limits of modern
portfolio theory. Top1000funds.com. Web.
Impact of Futures Market on Business
Development Essay
The futures market plays a significant part in
the index of stocks produced and issues by
different organizations. It might have both
positive and negative influences on the
stable financial development of a business,
and this factor creates uncertainties in the
stock market in general. However, by paying
attention to this economic sector, it is
possible to keep the Futures market under
control and ensure that it does not ruin its
performance.
The futures market is a crucial part of the
global economy which is widely used in the
twenty-first century. The main feature of this
market is the ability of businesses owners to
take part in auctions and buy or sell goods
with the specified delivery details.
Moreover, they have accurate contracts
which do not change over time and provide
people with stability. Originally, this type of
market was popular in huge cities like New
York and London (Sutcliffe, 2018).
Nevertheless, it is becoming more popular in
smaller world locations as many markets in
the economic system are adjusted to
electronic use. Compared to other stock
markets, the Futures market can trade 24
hours per day, and it massively attracts new
participants to this area of the economy.
However, the short life span of the market
does not allow the level of trust to grow at a
high rate, and many misunderstandings
might arise in those who start working in this
area.
To eliminate uncertainty in the Futures
market, economists need to understand the
potential advantages and disadvantages of
this principle. Some people believe that
because of the lack of knowledge in this
sphere, many businesses fail to analyze the
Futures market’s work (Kim and Enke, 2016).
Consequently, it brings confusion and
unwillingness to cooperate with this system.
Such advantages as the traditional style of
stock and bonds make it easier to control
income and expenses. Moreover, while using
the strategy of the Futures market,
economists can decrease the potential risk of
bankruptcy. Also, people who work in this
area have lower trading costs and longer
trading hours, significantly increasing the
general revenue.
Even though the Futures market might be
considered less risky, some advanced
economies can hide their illegal activities by
high leverage. Many businesses use this
system to hedge and decrease the risk of
unstable prices on goods (Ankamah-Yeboah
et al., 2016). This strategy can be considered
unfair in relation to competitors. Moreover,
such issues as lack of control under the
future changes, poor price stability, and
reduction in prices on assets when they
expire may cause negative outcomes of the
use of the Futures market. The word
‘futures’ means the inability to control
several parts of investment contracts, and it
might stop many people from using this
market as a basis for trading (Ankamah-
Yeboah et al., 2016). The prices might
change significantly every day, and even
though it requires fewer investments, the
losses might be twice higher.
The Futures market might be confusing for
beginners in trading, and it might cause
many uncertainties about the business’s
future performance. However, when all
positive and negative sides are deeply
analyzed, economists and owners of
companies can find this system as a
convenient and perspective way of
increasing revenue. Even though the Futures
market can bring unfairness and increase
competition, people acting legally can build
successful organizations without any
concerns.
References
Ankamah-Yeboah, I., Nielsen, M. & Nielsen,
R. (2016). Price formation of the salmon
aquaculture futures market.Aquaculture
Economics & Management, 21(3). 376-399.
Kim, Y. & Enke, D. (2016). Developing a rule
change trading system for the futures
market using rough set analysis.Expert
Systems with Applications, 59(15). 165-173.
Decision-Making in the Investments in
Stocks Essay
Decision-making in the investment area of
every business is one of the most important
skills that managers should obtain to make
sure that there is no risk for further
development. Rash decisions can lead an
organization to financial problems and
bankruptcy (Ali et al., 2020). Investments in
foreign stocks might also differ from the
internal market. All potential benefits and
drawbacks should go through deep analyses
to understand how the international stock
market generates outside the US.
Investors usually communicate with each
other, and they are all trying to follow
modern trends and changes in the business
environment. When interest rates fall,
investors are actively investing to generate
more profit in the future when the rate of
interest achieves its peak. One of the
benefits of investing while interests are low
is the insurance in the future earnings of a
business. However, without knowledge of
the investing system, companies might be at
risk of money loss (Lian et al., 2019). For
instance, inflation might become one of the
determinants of beneficial investing as the
value of money will be lost, and the company
will generate less in the future.
Learning from other investors might be
useful, as professionals who have been
working in this industry for many years can
easily understand when and where money
can be invested to generate the most profit.
When interest rates are falling, and several
managers from different companies use this
occasion as a beneficial time to invest, it can
be rational to use this time to integrate with
the stock market. However, it is still
important to avoid potential risks and
conduct a deep analysis before purchasing
shares from other organizations.
To stay professional in this market, investing
managers should create specific plans with
points that should be strictly followed. Beta
performance should stay as one of the main
priorities, which indicates the willingness to
invest. A low beta says that there is less risk
of losing money and fewer earnings, while a
high beta presents investors with higher risk
and increased returns (Silvasti et al., 2020).
While deciding the process of investing in a
specific business, managers should not break
their plan and alternate the type of
investment. These quick changes might
cause higher risk without serious
observations. For those, who are paying
extra attention to beta performance, it might
become to decide whether a high or low
percentage will be beneficial and profitable.
For beginners in the investing sphere, it is
extremely important to follow a created plan
and not make quick decisions when the
surrounding tends to change their buying
habits.
Investments and their returns might have
both positive outcomes and risks which
cannot be avoided. Managers of the
investment department cannot always
predict the possible conclusions of buying
shares from different organizations inside
the US, and their monthly performance
might vary depending on their work. Some
owners of companies are paying their
managers quarterly depending on the
general return, and they can also receive
bonuses for a high percentage of earnings.
However, for several businesses, this way of
wage payment can be costly as during the
first month of the quarter, the return level is
high, but in the next thirty days, the
performance shows a negative outcome of
the investment when the organization goes
into negative territory on average income
(Hernandez and Al Janabi, 2019).
Consequently, a new method of measuring
the work of the investment manager
introduced should be introduced. For
example, investors can make a weekly report
about their work and present investment
plans that might work for the future
generation of profit. This strategy will
increase the manager’s portfolio and create
a reliable relationship with the owner of the
organization. Moreover, top managers will
be able to measure the performance of their
workers every week and easily estimate the
possible distribution of salary.
Every country has different techniques for
controlling the stock market, and measuring
the investment manager’s portfolio can
differ from the USA’s way of completing the
same action. For instance, in European
countries, managers of companies that buy
shares and invest in other organizations are
paying more attention to the beta
performance (Ordu-Akkaya and Soytas,
2020). The strategies for rewarding workers
are almost the same across the world.
However, managers in Europe are paying
more attention to small details and general
revenue shifts, which directly affect the
investor’s salary, experience, and
professionalism. Managing measurement of
the portfolio in developed European
countries should be deeper, and owners
should keep the process of buying shares
under their personal control.
In conclusion, investments play a significant
role in every huge organization striving to
achieve high profit and success in the future.
Without controlling spending and returns,
organizations might fail, and it may be
complicated to rebuild the previous
reputation and achieve a high level of
performance. To make sure that the
investment sphere of an organization is
under control, the owner should monitor the
managers from this department and require
constant reports to predict future changes
and decrease the risk, which can appeal.
References
Ali, S., Bouri, E. & Czudaj, R. L.
(2020). Revisiting the valuable roles of
commodities for international stock
markets.Resource Policy, 66.
Hernandez, J. A. & Al Janabi, M. A. M.
(2019). Forecasting of dependence, market,
and investment risks of a global index
portfolio.Journal of Forecasting, 39(3). 512-
532.
Lian, C., Ma, Y. & Wang, C. (2019). Low
interest rates and risk-taking: Evidence from
Individual Investment Decisions. The Review
of Financial Studies, 32(6), 2107-2148.
Ordu-Akkaya, B. M. & Soytas, U. (2020). Does
foreign portfolio investment strengthen
stock-commodity markets
connection?Resource Policy, 65.
Silvasti, V., Grobys, K. & Aijo, J. (2020). Is
smart beta investing profitable? Evidence
from the Nordic stock market.Applied
Economics, 53(16). 1826-1839.
“Creating Greater Long-Term Sustainable
Value” by Siggelkow & Wibben Essay
(Critical Writing)
This essay seeks to analyze Nicolaj Siggelkow
and Phebo Wibben’s article, which discusses
the effectiveness of using LIVA (Long-Term
Investor Value appropriation) in creating
long-term value for clients. According to the
authors, most tools for measuring value give
short-term appropriations, so the
introduction of LIVA provides the most
efficient approach to maximizing long-term
value. The article demonstrates how LIVA
measures a company’s data on value
increase and decrease over specific periods.
Also, the authors compare the efficiency of
LIVA over other short-term measuring
devices such as the return of capital (ROI)
and total shareholder return (TSR).
The most important thing to consider in
creating long-term value for shareholders is
interpreting the meaning of long-term value
according to the particular company. The
article clearly defines the meaning of long-
term value using the Apple company as an
example. The report also compares LIVA’s
long-term value to TSR’s short-term value
through a given period to explain the
efficiency of the measuring device. Frigo et
al. (2018) argue that a suitable device for
measuring value must be consistent in
providing accurate data over long periods.
The article addresses the capacity of LIVA to
pick up data through changing dynamics and
long periods.
Apart from measuring long-term value, LIVA
gives historical information on company
economic performance and current
economic value. Shareholders need to know
a companies financial status before buying
shares. Therefore the device is efficient in
providing additional information on the
accurate history.
In conclusion, LIVA rates individual company
performance and rates industries in general
such as tech or telecommunications and
analyses the most profitable and bankrupt
industry. Since LIVA uses absolute measures
in calculating value, it does not consider
small firms with less economic impact. The
article does not explain how small
companies can use LIVA and if it is beneficial
or not. Further research should be done on
ways of including small companies in the
system.
Reference
Frigo, Mark L,C.M.A., C.P.A. (2018). Creating
greater long-term sustainable
value. Strategic Finance, 100(4), 28-36.
Social Return on Investment for Measuring
Social Impact Essay
The performance of corporation
organizations is an essential piece of
information for investors and stakeholders.
Return on investment is one of the most
applied tools to measure the performance of
business organizations. It helps investors
establish the profitability of a given
investment regarding capital (Arvidson et al.,
2013). Social return on investment measures
how an organization adds value to the
environment and communities (Bourey et
al., 2015, p. 1). The change is measured by
evaluating the company’s social, economic,
and environmental outcomes, which are also
the pillars of sustainable development.
Social return on investment is an ideal tool
for measuring social impacts and should be
employed in medium and large corporations.
To achieve true sustainability, organizations
report on three main aspects: financial gains,
as well as social and environmental impacts
of their activities, processes, and products
(Bellucci et al., 2017, p. 47). Over the years,
financial reporting has been the most
dominant way of measuring the
performance of corporate organizations.
However, with the rising concern about
social and environmental impacts, the global
reporting initiative standards were
developed to help organizations determine
their sustainability (Cooney & Lynch-Cerullo,
2014, p. 367). Although most organizations
are determined to achieve true
sustainability, their investment and
commitment efforts do not tally their social
and environmental impacts (Maier et al., p.
1805). The organizations are not designed to
achieve sustainable development but rather
to make profits for the investors. As
mentioned earlier, the goal of SROI is to help
organizations measure their impact on
society and the environment.
SROI is based on accounting principles that
include involving stakeholders,
transparency, and verifiable results. It also
requires experts to understand the changes
an organization undergoes and value only
things that matter(The social value network,
2012). Lastly, one should only include
material things and not over-claim them
(Nicholls. 2017. p. 127). The SROI analysis is
carried out in six bold steps, each achieving a
given role and paving the way for the next
one. The first step identifies the organization
or investment scope and the associated
stakeholders. With the help of the
stakeholders, the second step encompasses
pairing inputs with outputs. This is achieved
through an impact map, also known as the
theory of change (Yates et al., 2017, p. 136).
The third stage supports the outcomes by
associating them with relevant data. The
next step establishes the impacts of the
identified outcomes. In this step, outcomes
that might have other causes are not
considered in the following steps. The fifth
step calculates the return on social
investment. Here, organizations deduce the
benefits of the investment, deduct the
negative impacts, and juxtapose the results
to the investment. In this step, the actual
sensitivity of the results is calculated to
provide a clear picture of the value of the
investment. The last step involves sharing
the findings of the report with stakeholders.
The phase is often forgotten or downplayed
by most managers, challenging the essence
of the whole process. The organization
incorporates the good results and engages in
a constructive discussion with the
shareholders on approaching the negatives
identified.
Purpose of Social Return on Investment
SROI is an organization performance
measurement framework designed to be
used by all industries and domains. It is also
designed to help corporate account for their
actions to the communities that contribute
to their operations. The framework
measures the change resulting from
company operations and affecting the well-
being of its stakeholders. In a nutshell, the
framework measures the impact of the
corporate on the value they add to the
communities financially, socially, and
environment-wise.
Counter-Arguments Against Social Return
on Investment
ROI calculates the social impacts of
investments in various ways and whose
difficulty varies depending on the associated
activities (Davies et al., 2019. p. 585).
Although some activities are easily
monetized, others are challenging as their
functions are only comparable ordinarily. For
example, some activities can only be
evaluated using cost-of-use or revealed
preferences (Kalagnanam et al., 2019). Some
other social values can not be monetized,
and experts find it challenging to substantial,
which invalidates the entire framework
(Cordes, 2017.p. 98).
SROI is a cumbersome framework to
measure aspects that cannot be monetized,
like an increase in saved lives or quality of life
(Ribeiro et al., 2018, p. 262). Unlike financial
analysis, experts do not agree on the kind of
proxies that should be used where other
reporting principles, frameworks, and
standards have been well accepted (Ribeiro
et al., 2018, p. 262). It implies that
organizations have to develop their
standards, which might not receive general
acceptance or standardization, raising
questions about the applicability of the SROI
framework (Then et al., 2017).
SROI is commonly applied in non-profit
organizations such as schools, churches,
heritage conservation instructions, and
disaster relief organizations (Bellucci et al.,
2017). Experts argue that it is challenging to
establish commercial activities to be
evaluated (Farr and Cressey, 2019,p. 238). As
a result, the framework fails to achieve its
targeted goal in such situations. On most
occasions, it is impossible to measure the
social outcome as the link between
outcomes and the associated activities does
not exist (Kim & Lim, 2017, p. 14). Without a
standard interval between activities and
their corresponding outcomes, it becomes
difficult for experts to settle on the resulting
uncertainties, which invalidates the
applicability of the model.
Benefits of Social Return on Investment
Just like any other performance and value
measurement framework, SROI presents its
pros and cons, which are used to determine
its usefulness in a given organization,
context, or situation. Firstly, the framework
provides evidence for the value of an
investment in all domains: financial, social,
and environmental (Saenz, 2020). Usually,
the impacts of an investment should not just
be measured in terms of the financial gains,
which is the case with most performance and
value measurement frameworks. In cases
where the financial value for a given activity
or outcome is not known, the framework
employs proxies that help in the value
calculations. In the end, an organization can
deduce the ideal value of an investment in a
particular project in society and the
environment.
With the help of other value establishment
tools, such as results-based accounting,
mapping, or program logic, the social return
on investment can be used to measure the
value of services provided. This implies the
framework is applicable in seemingly
impossible scenarios to establish the value of
an investment on its financial, social, and
environmental obligations. Unlike products,
services are intangible and, at times,
challenging to evaluate (Jiang et al., 2019, p.
17). The barrier is, however, overcome by
the SROI performance and value
measurement framework.
The SROI framework helps investors and
managers engage in strategic discussions
that help improve or maximize the value and
quality of services offered (Chen et al.,.2018,
p. 33). It also helps organizations identify
essential resources, understand their
applicability, and harness them to manage
positive and negative risks (Chen et al., 2018,
p. 33). With the help of the SROI tools,
organizations can establish and appreciate
the importance of cooperating and working
with other individuals or organizations that
positively impact society and the
environment. The tool helps organizations
and stakeholders establish a common
ground for the value addition of social and
environmental affairs (Li et al., 2020, p.
1045). The tool also enables stakeholders to
take a proactive and constructive part in
service formulation and actualization design,
improving the organization’s reputation and
value.
The SROI makes organizations more
sustainable, raising their profile and
reputation before customers, regulators,
and investors (Shengxin & Aimin, 2020). It
also opens them up for further funding,
which speeds up their growth and
development. SROI improves the
persuasiveness of companies bidding for
public and private tenders. It makes a
company more competitive, effective,
accountable, and sustainable in its
operations. As a result, the organizations are
successful in their operations as they pay
attention to value addition to society and not
just financial gains (Palm et al., 2019, p. 634).
Unintended Impacts of Calculating Social
Return on Investment
The main goal of calculating social return on
investment is to establish the performance
value of a given investment to society and
the environment. However, the results are
only valuable when there are no other
widely accepted frameworks. The SROI is not
applicable in all situations. For example, SRIO
is not useful in calculating the value of
strategic plans developed and already in
actualization (Palm et al., 2019, p. 634).
Unless stakeholders are interested in the
results, it would be unnecessary to carry out
the SROI calculations. Also, unless there is a
need to implement changes to the way
things are done, it would be useless to carry
out SROI calculations in an organization
(Hanushek & Woessmann, 2020). If the SROI
analysis does not produce unintended
results, it could result in unplanned
stakeholder outrage, which could paralyze
company operations. It could also result in
unintended investments to correct defective
systems and nonfunctional departments,
hoping to make the organizations more
accountable and sustainable.
Reference List
Arvidson, M., Lyon, F., McKay, S. and Moro,
D., 2013. Valuing the social? The nature and
controversies of measuring social return on
investment (SROI). Voluntary sector
review, 4(1), pp.3-18.
Bellucci, M., Nitti, C., Franchi, S., Testi, E. and
Bagnoli, L., 2019. Accounting for social
return on investment (SROI): The costs and
benefits of family-centred care by the Ronald
McDonald House Charities. Social Enterprise
Journal.
Bellucci, M., Nitti, C., Franchi, S., Testi, E. and
Bagnoli, L., 2019. Accounting for social
return on investment (SROI): The costs and
benefits of family-centred care by the Ronald
McDonald House Charities. Social Enterprise
Journal.
Chen, C.S., Yu, C.C. and Hu, J.S., 2018.
Constructing performance measurement
indicators to suggested corporate
environmental responsibility
framework. Technological Forecasting and
Social Change, 135, pp.33-43.
Cooney, K. and Lynch-Cerullo, K., 2014,
October. Measuring the social returns of
nonprofits and social enterprises: The
promise and perils of the SROI. In Nonprofit
Policy Forum (Vol. 5, No. 2, pp. 367-393). De
Gruyter.
Cordes, J.J., 2017. Using cost-benefit analysis
and social return on investment to evaluate
the impact of social enterprise: Promises,
implementation, and limitations. Evaluation
and program planning, 64, pp.98-104.
Davies, L.E., Taylor, P., Ramchandani, G. and
Christy, E., 2019. Social return on investment
(SROI) in sport: a model for measuring the
value of participation in
England. International Journal of Sport Policy
and Politics, 11(4), pp.585-605.
Farr, M. and Cressey, P., 2019. The social
impact of advice during disability welfare
reform: from social return on investment to
evidencing public value through realism and
complexity. Public Management
Review, 21(2), pp.238-263.
Hanushek, E.A. and Woessmann, L., 2020.
The economic impacts of learning losses.
