Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: RealMuLan who wrote (36395)	7/22/2003 1:57:19 PM
From: energyplay	Read Replies (1) of 74559

Is the Yuan undervaluation a 'put' for FDI ? Say you are a manager in a multinational considering a direct investment in China (FDI, Foreign Direct Investment) If the investment works out , you do very well. If it doesn't work out , you could lose 15% ******* Now with the Yuan being undervalued, you know it will rise some time in the future - let's say about 20%... So if your investment doesn't work out, you lose 15% , but gain 20% on the Yuan re-valuation..... leaving you about 2% positive.... (0.85 x 1.20 = 1.02) A very strong reason to favor investment in China. Simmilar reasonig will apply to security (stock market) investments...

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