In financial terms, exchange rates (ER) refer to the value of two different currencies relative to each other (Sullivan & Sheffrin, 2003), while foreign direct investment (FDI ) refer to net inflows of foreign investment. This is true if the investment is to acquire a lasting interest in management terms where the firm operating in the specific economy in question is a different entity from the investor (Soltani, 2009). In recent years there has been greater understanding regarding the strengths of the concept and use of economic globalization. This can only be achieved through the use of foreign direct investment by multinationals. This occurs where and when a company establishes its base in one country but locates and/or acquires its manufacturing facilities in another country or countries. The realization of this could not have come at a better time than now, when there are conclusive reports that between 1986 and 1999, real world GDP grew at a rate of 2.5% per year while its exports they grew by 17.7%. What should be noted is the difference is so large that any economically conscious company would fail to recognize (Bernard, Jensen & Schott, 2005). The importance of foreign direct investment cannot be understated in any way. However, little research has been conducted on its importance in host countries and/or host countries as the concept is still quite young (Blonigen, 2005). This may be further contributed to the fact that no real decision has been made on what triggers foreign direct investment. However, there is undisputed evidence that most US companies tend to dedicate their activities to India, China, Malaysia...... middle of paper .......org/stable/2937961Grubert, H., & Mutti , J. (1991). Taxes, tariffs, and transfer pricing in multinational corporate decision making. The Review of Economics and Statistics, 73(2), 285-293. Retrieved from http://www.jstor.org/stable/2109519?origin=crossrefHines Jr., J.R. (1996). Altered States: Taxes and the Localization of Foreign Direct Investment in America. American Economic Review, 86(5), 1076-1094. National Bureau of Economic Research Cambridge, Massachusetts, USA. Retrieved from http://www.nber.org/papers/w4397Soltani, E. (2009). Foreign direct investment. Direct (vol. 2004, pp. 1-17). Sage Publications, Inc. Retrieved from http://eprints.lancs.ac.uk/23312/Stevens, G.V.G. (1998). Exchange rates and foreign direct investment: A notes, 20(3), 393-401. Sullivan, A., & Sheffrin, S. M. (2003). Economics: Principles in Action (p. 474). Pearson Prentice Hall.