Exploring the FDI Impact on Currency Devaluation

Abstract

This paper explores the impact of FDI (Foreign Direct Investment) on Currency Devaluation by reviewing the literature available over the period of 1970 to 2015 and by studying causal impact of FDI on Currency Devaluation across emerging and developed countries. By studying the data for all the countries on the globe, author has been able to conclude that FDI does have a very strong impact on currency devaluation in emerging countries whereas a low/no impact in developed countries. The author has also been able to highlight the factors behind this behavior by studying the key drivers of FDI growth and also the parameters affecting currency devaluation. This relation between FDI and currency value can be a good aide in decision making for central governments while deciding the monetary policies; to the corporate while raising long term finances and also to financial institutions on deciding the asset liability management to meet a company's obligations in order to reduce the firm’s risk of loss from not paying a liability on time.