Companies' international investment is a difficult endeavour that is hampered by a variety of challenges. Every year, multinational corporations such as Marriott Hotels make investments in several countries. Marriot Hotels' revenues are anticipated to be $12.78 billion, making it critical for the corporation to analyze all economic, social, and political variables in the area where it is investing. Currencies rates, investment policies, interest rates, government policies, trade rules, and international financial regulations all influence Marriot Hotel management decisions. The aforementioned characteristics have various advantages and downsides. Using Macroeconomic Factors to Forecast Exchange of Foreign Currency
Foreign currency exchange rates are important consideration for any business since they portray the economic stability of a country. Various Macroeconomic factors are used to determine the exchange rates. The advantages of using Macroeconomic rates include forecasting effect of tax rates. Tax rates in a country affect the revenue of a company and due to effects on exchange rates (Andreou, Ghysels & Kourtellos, 2013). Marriot will, therefore, have an advantage of using tax rates to forecast exchange rates. Macroeconomic factors determine the inflation and balance of payment. Basing foreign exchange rate through this will assist the company to determine on what to charge customers in their hotels. Disadvantages of using macroeconomic factors may include changes in business environment both domestically and internationally. International business practices may change and affect the tax rates, inflation, balance of payments and other economic indicators used in microeconomics.
Use of Social Political Factors to Forecast Exchange of Foreign Currency
Social, political factors are also used by firms to determine the exchange rates of foreign currencies. These factors are based on politics and the social dimensions of a country. Advantages that may result with the use of social-political factors may include political stability. A state that is politically stable experiences a positive economic growth as a result of investor confidence. When a country is stable politically, the exchange rate will remain stable. If there is instability, exchange rates will fluctuate. Marriot will also have the advantage of using the social-cultural environment of the people in the new investment destination. These variables affect exchange rates in various ways. If social strife and backwardness exist in the country, the exchange rate may fluctuate due to slow economic growth. Disadvantages of using social-political factors include uncertainties in political landscape of countries. In this regard, a country may be politically stable when a company forecasted exchange rates. However, the political landscape might change the following day based on various issues which may be disastrous for the company.
Question Two
Interest Rate Parity
Interest rates used by financial institutions of a country are important consideration for any business. Interest rates determine the cost of accessing finance. The advantages of using interest rate by a company are that the management can estimate the cost of establishing operations in the new destination. For instance, Marriot may be in a position to determine the future of their investment. The disadvantage of using interest rates to determine investment is that investors may assume that they are neutral to risks. This may affect the business negatively.
Relative Purchasing Parity
Use of purchasing power parity enables the company plan on the investment effectively. The prices of goods and services can be helpful since the company will have an accurate idea of how to charge customers. The disadvantage associated with this factor is the goods and services to be used in comparison (Mačerinskienė, & Balciunas, 2014). In investment such as Marriott requires a lot of goods and services which make use of relative purchase parity difficult to use.
Foreign Investment Policy
The Foreign investment policy of a company or country is crucial in the expansion of businesses. These policies determine what is expected of a company if it decides to invest in a foreign country. In the case of Marriott Hotels, it is advantageous to use foreign investment policies. These policies will assist the company to comply with the laws of the investment destination shielding the company from legal bottlenecks. The disadvantage of using foreign investment policy is that the policy is vulnerable to changes without notice which in turn affect the company negatively.
Question Three
Government Limitations on Foreign Investments
It is the responsibility of a government to allow and limit foreign investment in a country. The advantage of limiting foreign investment is the protection of homegrown investment. If a country allows excessive foreign investment, the local companies may fail to achieve their growth objective. Secondly, excessive foreign investment may lead to a country being too dependent on foreign trade and investment which itself is not good for a country. However, some disadvantages come about with limitation foreign investment. First, a country may fail to attract investments leading to unemployment. Foreign investment is one of the most suitable ways of creating jobs in a country.
Question Four
Trade Regulations and Policies
Trade regulations and policies assist a country in managing the activities of companies and organizations. There are several advantages of trade policies. For instance, Marriot Hotels may benefit from trade regulations when a government creates policies giving hotels tax incentives. The disadvantages of trade policies and regulations are that some regulations may lead to the collapse or stagnation of some companies. Secondly, trade policies may hinder investment in a country due to uncertainties of some policies.
Question five
International Financial Regulations
Various financial policies regulate trade at the international level. Some of these policies are created by international organizations such as the World Bank and International Monetary Fund. The advantages of international finance regulations include control of currency exchange rates and interest rates. These regulations allow a company such as Marriot to plan on investment and forecast revenue growth. For instance, these regulations are used to advise a country on when to lower bank interest rates. The disadvantage associated with use of international finance regulations is that not all countries adhere to them. Some countries follow the interest of their nations at the expense of the international community.
Conclusion
Trade and investments are the backbones of many countries. Investment should be encouraged and regulated at the same time. Marriott Hotels in their vision of investing in foreign countries must consider many factors so as to succeed. The dynamics of countries differs from region to region due to various factors. Government policy, social-political factors, macroeconomic factors, interest rates and international regulations are some of the factors that must be considered by companies. It is only through proper prior planning that a company such as Marriott Hotels will successfully invest in a foreign land.
References
Mačerinskienė, I., & Balciunas, A. (2014). Fundamental Exchange Rate Forecasting Models: Advantages and Drawbacks. Browser Download This Pape
Andreou, E., Ghysels, E., & Kourtellos, A. (2013). Should macroeconomic forecasters use daily financial data and how?. Journal of Business & Economic Statistics, 31(2), 240-251.
