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2.2.4 Modern Portfolio Theory
Talking about Modern Portfolio Theory (MPT), should be mentioned that Wan has found that modern portfolio theory is a theory of investment which tries to maximize return and minimize risk by carefully choosing different assets. However, this theory is a kind of a mathematical formulation of the concept of diversification in investing, with the aim of selecting a collection of investment assets that has collectively lower risk than any individual asset (2000, Chapter 5, pg 1). This theory is worth of attention, I am sure. It is very popular among business world. This theory was developed in twentieth century, to be more accurate, in 1950s and 1970s years. It was a very significant and important in the mathematical world and in modeling of finance with a help of math. Many researches criticized it and improved, but it is seemed to be prominent as well. It is still important to the humanity as a whole. To talk more technically, modern portfolio theory is seemed to be one, which combines various assets (assets of whose were not correlated) and reduces the general variance (division) of the whole portfolio. This theory, in addition, suggests that investors are rational and accurate, while markets are certainly efficient.
2.3 Effects of Investment Decisions
Talking about importance and effects of investment decisions, must be noticed that it is beyond any doubt. Investment decisions makes the organization’s growth become higher during the long term; the risk of the company is influenced by them; huge fund amount commitment is included by them; investment decisions can be irreversible as well as reversible when talking about substantial waste; they are seemed to be one of the most difficult and complete decisions to make. They bring many benefits and advantages to the organizations and companies. However, the investment decisions help organization to gain new experience. What are main considerations in making such decisions? They are seemed to be next: determine the investment scale and the company’s ability to allow it; how much time should pass in order to investment become yield returns; the period that is needed to pay back the investment; what profits and benefits are expectable and required from it and other. One could not say investment decisions do not affect company. In the paper we have already discuss the factors, which affect investment decisions. Therefore, investment decisions have a great and important role in the economic area of the world.
3. Reasons for investing in China
Have you ever asked yourself if it is profitable and successful to invest in China? Many people do. China is a country with definitely strong national force, “healthy” economic and workforce. One can say it is not developed as much as it is possible, so what? This country passed the difficult way, gaining knowledge and experience, which eventually led it to the top of developed countries and brought fame, respect and new skills. The country has nowadays one of the highest levels of a strong economic over the world. It is a first reason to invest money to this country, is not it? Next reason is that this country, as Patalon stated, remains awash in liquidity, with $1.68 trillion in foreign reserves, much of that excess capital is being focused on the upside, particularly when it comes to boosting disposable income and then building brand awareness for its own products (2008, pg 1).
Next cause is that its markets are likely to become “narrower”. Chinese firm nowadays are reporting actual profits. There are also many other reasons, which must ensure you that to invest money in China is a brilliant idea. China needed almost three decades to have a success. As far as I am concerned, China is one of the most successful and profitable countries in the world in the contemporary century. Although it has not big square of the country and great density of population, China’s nation always was very careful, assiduous and working, thus, they now has a good level of development of economic and health care. Thus, it is very profitable to invest money in it and have the representative office in it. In next part of my research work, I am going to discuss some German companies that are non-public and multinationals and are in China.
China’s GDP grows, while USA’s one gets smaller – it is a good reason to invest China, is not it? According to Yehezkel, relocation overseas to Third World production sites is often the result of rising domestic costs (especially wages costs). This factor is crucially important for export oriented FDI. Currency appreciation together with higher levels of rents and labor costs in the home country can cause a loss of international competitiveness, and China’s labor intensive market compensates that (Reasons to invest China, 2008, pg 1). Another important reason is that China’s taxes are low. China signed a tax treaty with several countries to avoid double taxes. In addition, the situation of politic and social spheres in China is definitely stable. Next reason to invest in China is that this country has existing and (that is much more important) growing domestic market. Further still, China is certainly experienced when manufacturing. Foreign investors can use locally component suppliers (that is established), it is definitely make sense to them.
4. German non-public multinationals in China
4.1 Heraeus Holding
Heraeus Holding – it is a company, which is seemed to be a global and international active group dealing with precious metals and technology with the help of company roots in Germany. However, the photovoltaic industry is seemed to be invested mostly in new goods-making facilities and, moreover, technologies worldwide, especially such investments are in the USA, in Europe, also in China and even in Japan. This company is a good example of FDI in China that brings the company only benefits and advantages. In addition, production and making precious sensors, metals, also dental goods and even biomaterials, glass from quartz, and specialty lighting sources – these are the main aims and goals of company’s activity. Nowadays Heraeus Holding holds nearly 5 thousands patents. It has near 350 employees, which are in 25 development centred areas over the whole world. Moreover, in 2008, Heraeus Holding is seemed to generate over 3 billion euro in revenue product. Heraeus Holding pays great attention to fulfilling their responsibility in the spheres of human health, welfare, innovation and lifelong learning, occupational safety, in addition, social involvement. Taking in account that China had a rising of rate of FDI (from $19 billion 2 decades ago to $300 billion in recent years), there was a correct decision to invest it.
4.2 Miele & Cie. KG
In the beginning, should be noticed that Miele & Cie. KG’s was established in 1899 by Carl Miele and Reinhard Zinkann. Miele & Cie. KG is a third manufacturer in Germany that deals with household appliances (washing machines, durable tumble dryers, irons, dishwashers, freezers, stoves, and other household appliances) and has a strong place among other companies in the European market. It is mentioned that over the past 3 years, the workforce in Germany has remained stable with currently 10,441 employees; the number of apprentices during the same period even grew by approx. 6 percent (<http://www.miele-sustainability.com/de/en/sustainability/1492.htm>, pg 1). Nowadays this company has run as a joint venture, however, with Melitta. The company says, “Success is only possible in the long term if one is totally and utterly convinced of the quality of one’s products”. And I could only agree with their words. Moreover, in 2009 the accreditation, taking in account ISO 9001, is going to be rather imminent for the Chinese joint venture.