Foreign Direct Investment: Effects of a 'Cheap' Dollar [January 15, 2008]   [open pdf - 122KB]

"Since 2002, the dollar has depreciated against a broad basket of currencies and against the euro. This depreciation has prompted some observers to question whether the 'cheap' dollar is leading to a 'fire sale' of U.S. firms, especially of those firms that can be identified as part of the Nation's defense industrial base. Congress has displayed a long and continuing interest in foreign direct investment and its impact on the U.S. economy. Since September 11, 2001, Congress has demonstrated a heightened level of concern about the impact of foreign direct investment in critical industries or in sectors that are vital to homeland security. On July 26, 2007, the 110th Congress passed P.L. 110-49 (H.R. 556), the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007. The measure reflects a heightened level of concern about the presence of foreign investors in the economy by increasing Congressional oversight over federal reviews of foreign direct investment and by expanding the current areas of review to include homeland security and critical infrastructure. The continued weakness in the exchange value of the dollar and its potential effects on direct investment likely will continue to attract the attention of Members in the second session of the 110th Congress. […] Furthermore, U.S. and foreign multinational firms have become skilled at using various techniques to hedge the risks of changes in exchange rates. This report assesses the current state of knowledge concerning the role of exchange rate movements in direct investment transactions, presents data on some of the major factors that influence direct investment, and provides an overview of some of the factors that influence the way in which firms finance their investments. This report will be updated as events warrant."

Report Number:
CRS Report for Congress, RL34000
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