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FOREIGN PORTFOLIO VS FOREIGN DIRECT INVESTMENT
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INTERNATIONAL FINANCE/INTERNATIONAL TRADE
NET MANAGEMENT /COMMERCE
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MEANING OF FOREIGN INVESTMENT
1.
FOREIGN INVESTMENT IS INVESTING IN A COUNTRY OTHER THAN HOME ONE
2.
IT INVOLVES CAPITAL FLOWING FROM ONE COUNTRY TO ANOTHER AND FOREIGNERS
HAVING OWNERSHIP OR SAY IN BUSINESS
3.
FOREIGN INVESTMENT IS GENERALLY SEEN AS A CATALYST FOE ECONOMIC GROWTH AND
CAN BE UNDERTAKEN BY INSTITUTIONS, CORPORATION AND INDIVIDUALS.
4.
WHEN MAKING FOREIGN INVESTMENT :
1.
ECONOMIC FACTORS
2.
OTHER RISK FACTORS : POLITICAL INSTABILITY AND CURRENCY FOREIGN EXCHANGE
RISK
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MEANING OF FOREIGN DIRECT INVESTMENT
1.
A FOREIGN DIRECT INVESTMENT IS AN INVESTMENT IN THE FORM OF CONTROLLING
OWNERSHIP IN A BUSINESS IN ONE COUNTRY BY AN ENTITY BASED IN ANOTHER COUNTRY.
IT IS DIFFERENT FROM FOREIGN PORTFOLIO INVESTMENT BY A NOTION OF DIRECT CONTROL
2.
THE INVESTMENT MAY BE MADE EITHER INORGANICALLY BY BUYING A COMPANY IN THE
TARGET COUNTRY OR ORGANICALLY BY EXPANDING THE OPERATIONS OF AN EXISTING
BUSINESS IN THAT COUNTRY.
3.
INVESTMENT MADE TO ACQUIRE LASTING INTEREST IN
ENTERPRISES OPERATING OUTSIDE THE ECONOMY OF THE INVESTOR.
•
FOREIGN DIRECT INVESTMENT
•
INVOLVE
1.
ESTABLISHING S DIRECT BUSINESS INTEREST IN A FOREIGN COUNTRY SUCH AS BUYING
OR ESTABLISHING A MANUFACTURING BUSINESS,BUILDING WAREHOUSE OR BUYING BUILDINGS
2.
TENDS TO INVOLVE ESTABLISHING MORE OF A SUBSTANTIAL, LONG TERM INTEREST IN
THE ECONOMY OF A FOREIGN COUNTRY.
3.
DUE TO THE SIGNIFICANTLY HIGHER LEVEL OF INVESTMENT,USUALLY UNDERTAKEN BY
MNC,LARGE INSTITUTIONS
4.
THEY ARE VIEWED MORE FAVOURABLY AS THEY ARE LONG TERM INVESTMENT
5.
DIRECT INVESTMENT INCLUDED HAVING CONTROL OVER THE BUSINESS INVESTED IN AND
BEING ABLE TO MANAGE IT DIRECTLY BUT IT ALSO INVOLVE MORE RISK,WORK AND
COMMITMENT
•
EXAMPLE IN INDIA IN 2019
1.
TELECOMMUNICATION,SERVICES AND COMPUTER SOFTWARE WERE THE TOP ARES
ATTRACTING FDI IN INDIA DURING THE FIRST QUARTER
2.
THE TOTAL INFLOW INTO ALL SECTORS INCREASED BY 28 % TO 16.33 BILLION AND LAST
FISCAL IT WAS $ 12.75
3.
SINGAPORE WAS THE LARGEST SOURCE OF FDI IN APRIL TO JUNE IN 2019-20 WITH
DOLLAR 5.33 BILLION,MAURITIUS WORTH 4.67 BILLION,THE NETHER LAND WORTH DOLLAR
1.35 BILLION DOLLARS AND JAPAN WORTH 472 MILLION DOLLAR
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FOREIGN PORTFOLIO INVESTMENT
1.
REFERS TO INVESTING IN THE FINANCIAL ASSETS OF A FOREIGN COUNTRY SUCH AS
STOCKS OR BONDS AVAILABLE ON EXCHANGE
2.
VIEWED LESS FAVOURABLY THAN DIRECT INVESTMENT BECAUSE PORTFOLIO INVESTMENT
CAN BE SOLD OFF QUICKLY AND ARE AT TIMES SEEN AS SHORT TERM ATTEMPT TO MAKE
MONEY RATHER A LONG TERM INVESTMENT
3.
AS WITH EQUITY INVESTMENT FOREIGN PORTFOLIO INVESTORS USUALLY EXPECT TO
QUICKLY REALIZE A PROFIT ON THEIR INVESTMENTS.
4.
THEY ARE EASILY TRADED AND THE LIQUIDITY OF THE PORTFOLIO INVESTMENT MAKE
THEM MUCH EASIER TO SELL THAN DIRECT INVESTMENT
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EXAMPLE IN INDIA
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INDIA’S FOREIGN PORTFOLIO INVESTMENT INCREASED BY 5.156 USD BILLION IN JUNE
2019 COMPARED WITH AN INCREASE OF 11.469 USD BILLIN IN THE PREVIOUS QUARTER
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DIFFERENCE
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FOREIGN DIRECT INVESTMENT
1.
IS BUILDING OR PURCHASING BUSINESSES AND THEIR ASSOCIATED INFRASTRUCTURE IN
A FOREIGN COUNTRY.
2.
LONG TERM INVESTMENT
3.
ONLY SUITABLE FOR LARGE CORPORATIONS,INSTITUTIONS AND PRIVATE EQUITY
INVESTORS
4.
FDI INVESTOR PLAY AN ACTIVE ROLE IN THE MANAGEMENT OF THE COMPANY
5.
GAIN BOTH OWNERSHIP AND MANAGEMENT RIGHT
6.
PROJECTS ARE MANAGED WITH GREAT EFFICIENCY
7.
INVEST IN FINANCIAL AND NON FINANCIAL ASSETS LIKE RESOURCES,TECHNICAL KNOW HOW
ALONG WITH SECURITIES
8.
ENTRY AND EXIT ARE VERY DIFFICULT
•
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FOREIGN PORTFOLIO INVESTMENT
1.
PURCHASING OF SECURITIES OF FOREIGN COUNTRIES SUCH AS STOCK,AND BONDS ON AN
EXCHANGE
2.
SHORT TERM MOVE TO MAKE MONEY
3.
PLAY A PASSIVE ROLE
4.
DEGREE OF CONTROL IS VERY LESS ONLY GETS OWNERSHIP RIGHT
5.
LESS EFFICIENTLY MANAGED
6.
INVEST IN FINANCIAL ASSETS
7.
ENTRY AND EXIT ARE EASY
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