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Global Cost of Capital

In: Business and Management

Submitted By azizxon
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Global Cost of Capital
Prerared by: Azizhon Isayev. Master of International Finance (XM-3)
Tashkent Financial Institute.
Global cost of capital is a financial term that is loosely defined and arrived at, but basically represents what the minimum expected rate of return can be for an investment in a foreign market that is sufficient to draw funds into that market. This is seen as an opportunity cost because it means that, when investors take risks in a particular foreign market, they are forgoing the opportunity of investing their capital assets elsewhere. Normally, the higher the risk, the higher the international cost of capital. This leads to the basic premise that emerging markets and developing nations have a higher international cost of capital both because they are more unstable markets and because the data available to analyze appropriate levels of risk for the investor is usually more unreliable or scarce than in first-world economies.
Just as defining the concept of international cost of capital can be something of a fluid situation, arriving at actual figures for what it is market by market can also differ due to over a dozen different financial analysis approaches used to reach conclusions. While some of these methods produce closely similar results, others are ad hoc calculations that vary widely. One of the most common ways to look at the risk of investing in foreign interests and what type of returns these investments can offer is to approach the problem from a systemic point of view. This means that diversification among different industries within the country would not offer any added protection from risk for the investor.
An established systemic approach first conceived in the early 1960s is known as the Capital Asset Pricing Model (CAPM). While CAPM was initially based on US market data, it has since been expanded to a world scope as of

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