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The Role of the Central Bank and Commercial Banks in Creating and Maintaining a Favorable Investment Climate in the Country

  • Peter Brusov
  • Tatiana Filatova
  • Natali Orekhova
  • Mukhadin Eskindarov
Chapter

Abstract

In this chapter we study the role of the Central Bank and commercial banks in creating and maintaining a favorable investment climate in the country. Within the framework of modern investment models created by the authors, the dependence of the efficiency of investments on the level of debt financing within a wide range of values of equity costs and debt capital costs under different project terms (long-term projects as well as projects of arbitrary duration) and different investment profitability coefficients β is investigated. The effectiveness of investments is determined by Net Present Value, NPV. The study is conducted within the framework of investment models with debt repayment at the end of the project term.

It is found that NPV depends practically linearly on leverage level L, increasing or decreasing depending on profitability coefficient β and credit rate values kd. The cutoff credit rate values kd*, separating the range of increasing NPV(L) from range of decreasing NPV(L), are determined. The Central Bank should keep its key rate at the level which allow commercial banks to keep their credit rates below the cutoff credit rate kd* values in order to create and maintain a favorable investment climate in the country.

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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Peter Brusov
    • 1
  • Tatiana Filatova
    • 1
  • Natali Orekhova
    • 2
  • Mukhadin Eskindarov
    • 1
  1. 1.Financial University under the Government of Russian FederationMoscowRussia
  2. 2.Center of Corporate Finance, Investment, Taxation and RatingsThe Research Consortium of Universities of the South of RussiaRostov-on-DonRussia

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