COUNTRY INVESTMENT FINAL CASE
The woman in the dark suit (serious women always wear black suits) leafed through the papers on her desk. She was a fund manager and she was nearing the deadline for an investment decision by one of her leading clients, who wanted to invest manufacturing sector (FDI) in a developing country. She had identified three possible candidates with low, middle and high income levels for the investment. Her task now was to select one of the three as the investment site, and to rank the others in order of priority in case her client had an objection to the number-one choice.
The woman had data on certain basic indicators for the same six-year period for all countries. She also had some basic descriptive data on each country's political, economic and labor situation and indicators on certain aspects of the individual countries´ institutions so that she could evaluate other types of risk.
PART I:
1. Which variables from the data presented here should the fund manager select to asses the risk represented by these countries? Defend your approach and prioritize (do not use all variables some might not be relevant in your decision!! Weight the variables to suit your personality and the theory learned).
2. How will she (and you) rank the countries for the investment decision based on the macroeconomic data? Justify. Present the scorecard you used in your analysis.
MACROECONOMIC DATA
COUNTRY 1: BRANDT REPUBLIC (Low income per capita)
|
Brandt Republic
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
|
% change real GDP
|
-0,2
|
6,4
|
0,3
|
-6,0
|
3,7
|
3,4
|
|
CPI % change
|
99,9
|
50,0
|
35,8
|
23,6
|
16,2
|
12,5
|
|
Unemployment rate %
|
11,8
|
11,4
|
11,2
|
14,9
|
13,9
|
13,2
|
|
Budget balance
|
1,6
|
2,2
|
-4,0
|
-1,7
|
-1,7
|
-4,4
|
|
Foreign debt % GDP
|
7
|
10,3
|
6,6
|
5,8
|
5,4
|
6,3
|
|
Debt service % GDP
|
7,0
|
10,3
|
6,6
|
5,9
|
5,2
|
6,2
|
|
Current account balance
|
12,6
|
4,3
|
-4,9
|
2,2
|
10,1
|
1,6
|
|
Official interest rate
|
39,4
|
23,7
|
46,4
|
32,1
|
25,2
|
22,5
|
You should infer what happens to the exchange rate based on the current account position, inflation trend and interest rate changes.
COUNTRY 2: LIBERTY KINGDOM (Middle income per capita)
|
Liberty Kingdom
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
|
% change real GDP
|
7,0
|
7,5
|
3,1
|
-4,7
|
7,4
|
-7,5
|
|
CPI % change
|
80,1
|
86,0
|
84,5
|
64,8
|
54,9
|
54,4
|
|
Unemployment rate %
|
5,8
|
6,9
|
6,2
|
7,3
|
6,6
|
8,3
|
|
Budget balance
|
-8,4
|
-8,5
|
-8,4
|
-8,6
|
-7,5
|
-16,1
|
|
Foreign debt % GDP
|
44
|
44,7
|
48,5
|
55,2
|
58,8
|
77,7
|
|
Debt service % GDP
|
6,0
|
6,3
|
7,5
|
10,0
|
10,4
|
15,4
|
|
Current account balance
|
-1,3
|
-1,4
|
1,0
|
-0,7
|
-4,9
|
2,3
|
|
Official interest rate
|
90,7
|
89,5
|
90,1
|
88,4
|
62,2
|
95,0
|
You should infer what happens to the exchange rate based on the current account position, inflation trend and interest rate changes.
COUNTRY 3: PINEWAY (High income per capita)
|
Pineway
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
|
% change real GDP
|
5,4
|
3,6
|
3,7
|
2,3
|
7,7
|
-0,3
|
|
CPI % change
|
11,3
|
9,0
|
5,4
|
5,2
|
1,1
|
1,1
|
|
Unemployment rate %
|
6,7
|
7,7
|
8,5
|
8,9
|
8,8
|
9,3
|
|
Budget balance
|
-8,2
|
-2,7
|
-2,3
|
-2,4
|
-0,7
|
-4,4
|
|
Foreign debt % GDP
|
49,5
|
52,1
|
54,2
|
58
|
53,5
|
54,8
|
|
Debt service % GDP
|
6,0
|
6,5
|
5,2
|
6,0
|
8,0
|
5,4
|
|
Current account balance
|
-5,3
|
-3,3
|
-1,2
|
-1,6
|
-1,1
|
-1,4
|
|
Official interest rate
|
20,7
|
18,7
|
16,2
|
16,4
|
12,9
|
10,0
|
You should infer what happens to the exchange rate based on the current account position, inflation trend and interest rate changes.