CONSIDERING EXCHANGE RATE MOVEMENTS IN ECONOMIC EVALUATION OF FOREIGN DIRECT INVESTMENTS

ABSTRACT

One of the major risks encountered in economic evaluation of foreign direct investment is the changes in future exchange rates that may affect the accuracy of the estimated economic worm of the investment. The objective of this article is to present a model for reducing the uncertainty associated with changes in foreign exchange rates when conducting economic evaluations of foreign direct investments. The model uses the Purchasing Power Parity Theorem and weighted averages for creating a procedural approach in which future changes in exchange rates are considered and included in the calculation of an overall profitability measure.

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Notes on contributors

PUI-MUN LEE

PUI MUN LEE is an Assistant Professor in the Department of Industrial and Systems Engineering at the University of Southern Colorado. He graduated with an MBA [1991] and a Pb.D. [1994] in Industrial and Systems Engineering from Virginia Polytechnic Institute and State University. He also has a Bachelor and a Master's degree Mechanical Engineering from the University of Strathclyde, Glasgow, Scotland. He is the author of several technical papers published in refereed proceedings and journals. His current research interests include developing expert systems to facilitate the application of concurrent engineering, incorporating activity-based costing concepts in the design process, and developing economic analysis support systems for the design process.

WILLIAM G. SULLIVAN

WILLIAM G. SULLIVAN is Professor of Industrial and Systems Engineering at Virginia Polytechnic Institute and State University. He is the author or seven books and over 100 technical papers. One of Dr. Sullivan's books. Engineering Economy (Macmillan), is now in its ninth edition. Dr. Sullivan's current research interests include justification of advanced manufacturing technologies and activity-based costing applied to the design process. His latest Prentice-Hall book, Economic and Multiattribute Evaluation of Advanced Manufacluring Systems, (co-authored by John R. Canada), received the M. Eugene Merchant Manufacturing Textbook Award from the Society of Manufacturing Engineers (1989). He is also a two-time recipient of the Eugene L. Grant Award for the best paper in The Engineering Economist Volumes 29 and 36. Sullivan is a Fellow in the Institute of Industrial Engineers.