Economics (Multinational firms. FDI Question 2: Balancing macroeconomic environment is one of the most important aspects for a host government. Comment on the roles of fiscal measures (e.g. corporate income taxes and import tariffs) monetary and exchange rate policies on inward FDI inflows. Solution INRODUCTION The growth of private forign direct investment in the developing world has been extremely rapid in decent years.MNC\'s are not in the development busines.Thier objective is to maximize their return on the capital.They seek out best profit opportunities.MNC\'s carry with them technologies of production,tastes and styles of living ,managerial philosophies and diverse business practices.Although globally,FDI peaked in 2000 but fell aftermath of the 9/11 terrorist attcks,FDI has been rebonded for several years. MNC\'s underatke five different forms in the under developed countries. 1. Branches in the different nations 2. Subsidiaries 3. Joint-venture companies 4. Franchise holders 5. Turn Key projects There has been rapid expansion of the activities of MNC\'s.The situation of today (2014- 2015),with WTO came into being.Now rougly 5-6 lakhs MNC\'S are operating in one form or the other across the world.The focus of the MNC\'s is basically on the primary countries and the extractive industries. Macroeconomic poilcy of a host country creates both problems and opprtunities for international firms. FICAL POLICY MEASURES 1. Investment incentives: There are two kinds of investment incentives a. Fiscal incentives: policies that are designed to reduce tax burden of a firm.It includes tax concessions in the form of reduced corporate income tax, exemption from improt duties etc. b. Financial incentives: They are direct contribution to firm by the government. It includes subsidised loans,loan guarantees, governmnet insurance at preferential rates. 2. Removal of Restrictions: Various forms of restrictions were applied to FDI in the developing countries in the pre liberalised era.Example:allowing only a fixed percentage of foreign owned capital in an enterprise,restrictions on reimbursement of capital upon liquidation.However in the WTO regime, due to enforcement of TRIMS(Trade related Investment Measures) many of these restrictions have now been withdrawn.The types of restrictions realted to FDI has been greatly liberalised. For example: large number of countries in Asia do not require investment approvals or licensing except for few sectors that are closed to FDI(mainly for security reasons). 2. MONETARY POLICY a. Funds originating in advanced economies dominate capital inflows to large emerging economies.These flows are influenced by advanced economic policies including monetary policy.The developments in financial markets have extended the role of large cross border financial intermediaries and liquidity ceating instruments in global capital flows. b. Other policy measures inclues careful monitoring of systematic non bank financial instructions with.