In a labour surplus four-sector economy composed of household, business, government and the rest of the world, income, output, and/or employment is determined by the decision to save and invest. Investment is mainly financed by two major sources: internal and external - and is determined by benefit (B) and cost (C) calculations. The greater the B/C ratio, the higher the profit. So long as B exceeds C, the net present value is positive and the marginal efficient of investment exceeds the rate of interest. Savings instead, are the positive function of both the income and rate of interest. The attraction for saving also increases with the stability of prices.
In an undeveloped country like Nepal, since the domestic source of financing is constrained by an ability to save, investment requirements are fulfilled by an inflow of international funds, both private and official. Privalte international decisions to invest are influenced by monetary, credit, fiscal and other policies such as those on profit repatriation, labour use and permissive level and rate of exploitation of available financial and physical resources. Market prospects across borders is of paramount interest.
