direct investment. Hence, we deal here with the foreign direct investment. Foreign Portfolio Investment (FPI) means the entry of funds into a nation where foreigners deposit money in a nation’s bank or make purchase in the stock and bond markets, sometimes for speculation. FPI is part of capital account of BoP.
Foreign Institutional Investment (FII) is an investment in hedge funds, insurance companies, pension funds and mutual funds. Foreign institutional investment is a common term in the financial sector of India. For example, a mutual fund in the United States can make investment in an India-based company. The important advantages of foreign direct investment are the following: .
FDI may help to increase the investment level and thereby the income and employment in the host country. . Direct foreign investment may facilitate transfer of technology to the recipient country. .
FDI may also bring revenue to the government of the host country when it taxes profits of foreign firms or gets royalties from concession agreements. . A part of profit from direct foreign investment may be ploughed back into the expansion, modernization or development of related industries. .
It may kindle a managerial revolution in the recipient country through professional management and sophisticated management techniques. . Foreign capital may enable the country to increase its exports and reduce import requirements. And thereby ease BoP disequilibrium.
. Foreign investment may also help increase competition and break domestic monopolies. . If FDI adds more value to output in the recipient country than the return on capital from foreign investment, then the social returns are greater than the private returns on foreign investment.
. By bringing capital and foreign exchange FDI may help in filling the savings gap and the foreign exchange gap in order to achieve the goal of national economic development. - - International Economics . Foreign investments may stimulate domestic enterprise to invest in ancillary industries in collaboration with foreign enterprises.
. Lastly, FDI flowing into a developing country may also encourage its entrepreneurs to invest in the other LDCs. Firms in India have started investing in