A Financial Investment Opportunity in Russia

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A Financial Investment Opportunity in Russia
Maureen Kelly
FIN356_1201A_01: International Finance
Georgia Fountoulakis
Colorado Technical University Online
I.
Table of Contents
Page
I. Background2
II. Pre-Investment Financial Considerations2
III. Forecasting the Foreign Currency Exchange Rate3
IV. Interest Rate Parity and Forecasting5
A. Macroeconomic Factors5
1.Gross Domestic Product5
B. Fiscal and Account Deficits and Inflation6
C. Socio-Political6
1. Unemployment Rate, Growing the Shrinking Workforce and
Government Incentive Support Programs6
2.Government Stability8
3.Central Bank Independence8
D. Fundamentals9
1.Purchasing Power Parity9
2.Trade Weighting9
E. Speculative Factors9
V. Foreign Investment Policies11
VI. The Foreign Investment Atmosphere12
VII. The Volatility of the Russian Stock Market13
VIII. Government Intervention in the Private Financial Sector15 IX. Government Limitations on Foreign Investments15
X. Trade Regulations and Policies and World Trade Organization Entry16 XI. International Finance Regulations16
A. Currency Controls – General Principles16
B. The Central Bank of the Russian Federation Support17 C. The International Monetary Fund and Russia19
XII. Capital Structure20

[Partially repurposed work (3%). Previously submitted in its entirety for MGM355_1104B_01: International Business Practices, Ginsburg, J., DM, 12.12.2011, Paper ID: 219637211] A Financial Investment Opportunity in Russia

I. Background
Our regional bank has come upon an international global expansion opportunity and must make a decision which country presents the most optimal environment to support this expansion move. With readily-available investment funds, there are many factors to be considered. Some of these include the political, economic and social stability of the country as well as the legal system. Additional discussion providing the advantages and disadvantages of surround interest rate parity, government regulations and trade agreements with particularity directed to the effects these factors have on international financing will be included as well. In anticipation of research that promises to support this objective, we have concluded that Russia presents the best option for our bank. In support of this decision, evaluation and analysis of the components of the decision-making process will be presented (Colorado Technical University, 2011). II. Pre-Investment Financial Considerations

When contemplating doing business with a Russian company, an important area of consideration lies within the fact that because many companies were formed under the previous Soviet Union laws that no longer hold legitimacy, their legal status is now questionable. Because of this, most business agreements are formed upon trust alone simply because the legal basis will have no meaning should the relationship itself break apart. Many large Russian organizations retain their air of autocracy and decision-making through one central individual. Most decisions are made without consultation with the exception of inclusion of a relatively few advisors who may be trusted (World Business Culture, n.a.). In order to succeed in business, it must be understood and completely appreciated that Russia is a culture distinct from others. Without meaning to offend, the minor nuances of the Russian business world may create conflict before business begins. As an example, it is looked upon as an omen of bad luck when a handshake is offered in a doorway threshold. By virtue of being unaware of the implications of this welcoming gesture – completely accepted in the United States – the potential business relationship may be jeopardized (Doing business in Russia, 2010). Secondary to understanding the small nuances is the fact that Russia places a great deal of importance on building...
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