Using the analytical hierarchy process to select a financing instrument for a foreign investment

The purpose of this paper is to apply the Analytical Heirarchy Process Model in selecting an instrument to finance a foreign direct investment. As with other finance decisions, risk and return are evaluated before the appropriate instrument is chosen. The model allows for several character sets to be evaluated. Included in this analysis are the nature of the investment, the financial instruments available and their characteristics. The set of elements needed to be financed are characterized by the amount and nature of the asset. Relevant factors in evaluating the instruments are: costs of borrowing and risks associated with the instrument. The set of financing instruments to be evaluated include a local institutional loan, international capital market loan, international capital market bond, and internally generated funds. This model, developed by Thomas Saaty (Saaty 1980), can be used to solve multicriteria problems by the use of a subjective scale to quantify decision factors.