Question

define the terms FDI and FII. Clearly explain the difference between the two concepts.

Answer 1

Ans. FDI (Foreign Direct Investment) is an investment made by the parent company in a foreign foriegn business where he has the control over the business invested in. FDI occurs through the primary market and are long term investments. FDI faces difficulties if it wants to exit the market. So, FDI is considered more stable and also, FDI’s decisions are dependent upon the business procedures in the country they are investing in.

FIIs (Foreign Institutional Investors) are those institutuional investors who invest in the assets belonging to the country different from where they are actually based. FII invest through the financial markets of the other country  and are short term investments. It is easy for FIIs to enter and exit the market. So, they are considered more volatile. They don’t have the control over the company in whose assets they are investing.

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