Malaysia Exchange Rate Essay
Exchange rate, defined as the domestic currency price of foreign currency, a good thing in terms of their levels and their fluctuations. The exchange rate can affect both the amount of foreign direct investment (FDI) regulations and the provisions of this investment spending in various countries. This means that when the currency devaluation to reduce the potential impact of two other currencies are relative to exchange rate changes on foreign direct investment .It reduces the state wage and production costs relative to those of their foreign counterparts by (Goldberg, Linda & Charles 1995 ).
Exchange rates had a negative relationship with foreign direct investment. It shows that the weak currency reduces the inflow of foreign direct investment
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A country can attract foreign direct investment by devaluing the currency because foreign direct investment will benefit from the weakness of the currency of the host country. The depreciation of the national currency against the Malaysian Ringgit foreign investors will increase foreign direct investment inflows. The exchange rate is one of the most important factors that affect trade between the countries. If the exchange rate rises, banks are relatively more favorable to the exporter, the exporter will be aware to changes in exchange rates. Statutory corporate tax rate is used as a proxy for the effects of fiscal policy to all new investors, ignoring tax holidays, accelerated depreciation and other incentives that reduce the effects of the statutory rate. Corporate tax rate higher charged against profits corporations to reduce foreign direct investment returns and therefore it will have a negative impact on foreign direct investment inflows by (Shahrudin, Yusof & Satar, …show more content…
A diminished currency value would lead to a higher relative wealth position of foreign investors and thus lower the relative cost of capital. Malaysia have a significant impact to the inflows of Malaysian foreign direct investment. Under the fixed exchange rate policy, Malaysia was able to sustain and attract inward foreign investment due to the lower costs of production compared to others affected countries. The depreciation in the host country exchange rate will increase the FDI inflow since it reduces the cost of capital investment. Currency of Malaysia appreciates because of their increment in relative wealth and this will make external finance become more costly than internal
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