Analysis the risks of foreign investors to Russian industry

Investment is necessary factor for creating and developing government’s wellbeing. Only investment is not sufficient for the successful development and implementation of the investment project. It is important to forecast and plan of investment, the organization of the investment process, the purpose and object of the investment. It is necessary to consider investment process as a whole: a preliminary analysis of the investment project, monitoring and correlation in progress, its completion. The obligatory element of analysis of investment projects is an estimation of the risk, which determines the probability of expected benefits.

Investment risk it is the risk of depreciation of investments, the risk of loss (or not receiving full value from them), impairment of investments and unexpected financial losses (loss of income, capital gains reduction) in a situation of uncertainty of investing in economic conditions.

The main features of Russian industry that could be taken into consideration by foreign investors are as follow risks: Russian financial market is relatively undeveloped; crediting rates are set too high; the peculiarities of inflation in Russia; several currencies are actually used in Russian economy simultaneously; complexity of tax structure in Russia; the difference between Russian accounting standards and International Financial Reporting Standards (IFRS); lack of government financing of the investment projects; fluctuations in paying capacity of population and contracting parties; legislation instability [1].

Inflationary risk is very important in the environment of Russian economy. For estimation of this factor it will be constructed the econometric model, represented test analysis of this model and making conclusion and giving recommendations.

In research Inflation is an endogenous (internal) variable because it is dependent and it can be calculated by using different factors and indicators which have influence on it. This variable will be explained by the econometric model. Consumer price index (CPI) and monetary aggregate (M2) are exogenous (external) variables, because they will explain the internal variable Y (Inflation).

The indicators are taking for the period from 2000 to 2016. Due to regression analysis it was received following data: level of significance is 95%;

R2 = 0,88; adjusted R2= 0,8; observations = 17.

The following estimated model has been obtained:

"y t = -1324,7 + 13,2*CPI + 2,75*M2 + o t

• (21,8)   (0,22)      (0,5)

[-60,8]   [61,5]     [0,49]

R2= 0,88

Coefficients of the model illustrates, that when ⁿ 1 = 13,2, which means that if the consumer price index increase by 1%, inflation will grow to by 13,2% and vice versa, if the CPI decline by 1%, inflation will decrease by 13,2%.

• ⁿ 2 = 2,75 which means that if monetary aggregate increase by 1 bln, inflation will enhance by 2,75% and vice versa, if M2 decrease by 1 bln, inflation will drop by 2,75.

For model test it will be used R2-test and Durbin-Watson test. Value of the multiple coefficient of determination R2 equals to 0,88 shows that 88% of total deviation of inflation is explained by the variation of CPI and M2. It means that value of R2 reliable indicator and shows significant correlation [2].

Durbin-Watson test is using for checking autocorrelation. For this test it is necessary to use “Durbin-Watson significance table”, where total number of observation is 17, and total number of factors equal 2. It means that there is no autocorrelation. Hence, indicators of the model are objective and the third assumption of Gauss Markov theorem is adequate for this model.

For foreign investors one of the important indicators it is the predictability of the economy. Thanks to econometric and mathematical models, it is possible to calculate the risk and get relevant estimation, which helps to clarify the data for foreign investors.

Used sources