A Multinational Corporation Microeconomic Model for Exchange Rate and FDI

This paper analyzes how exchange rate affects the direct investment by a multinational corporation model in which two factories of the identical corporation located in two different countries in the pursuit of the maximal profits. we set up hypotheses and give the derivation of the model through which we draw a conclusion: the real exchange rate has a negative influence on FDI by the wealth and cost effects. And we also find the experiment test is in support of the conclusion firmly. Key words: Exchange Rate; FD