Question

Contrast international portfolio investment and foreign direct investment. How do they relate to risk and ability to control?

Answer 1

FDI includes foreign investment in which an individual obtains a permanent interest in another country's enterprise. It involves developing a foreign country 's direct business interest, such as purchasing or setting up a manufacturing company, building warehouses, or purchasing buildings. In addition, it appears to entail having more of a important, long-term interest in a foreign country's economy.

In comparison, the FPI applies to investing in a foreign country's financial properties, such as stocks or bonds available on an exchange. In simple words, FPI includes purchasing securities which can be easily bought or sold. The goal of FPI is usually to invest capital in the stock market of the foreign country hoping to produce a rapid return. This form of investment is also often perceived as less desirable than direct investment since portfolio investments can be sold out quickly and are often regarded as short-term attempts to make money rather than long-term economic investment.

An investor from a foreign country will easily make an investment in a foreign portfolio. FDI and FPI are essentially two methods of bringing foreign capital into the domestic economy. Such an investment has both positive and negative consequences, as the inflow of funds increases the balance of payment status while the outflow of funds in the form of dividends, taxes, imports, etc. would result in the balance of payments being decreased.

Since capital is often in short supply and is highly mobile, foreign investors have common requirements when determining the desirability of an FDI and FPI overseas destination, including: Economic factors: economic strength, trends in GDP growth, infrastructure, inflation, currency risk, foreign exchange controls Political factors: political stability, the business ideology of government, the track record International investor benefits: tax rates, tax rewards, real estate rights Certain factors: labor force preparation and expertise, industry prospects and local rivalry