Question

During the past year, several large banks extended $200$million in loans to the government and several firms in a developing nation. International investors also purchased $150$million in bonds and $350$million in stocks issued by domestic firms. Of the stocks that foreign investors purchased, $100$million were shares that amounted to less than a $10$percent interest in domestic firms. This was the first year this nation had ever permitted inflows of funds from abroad.

a. Based on the investment category definitions discussed in this chapter, what was the amount of portfolio investment in this nation during the past year?

b. What was the amount of foreign direct investment in this nation during the past year?

Short answer

(a) The amount of portfolio investment in this nation during the past year is $250$million.

(b) The amount of foreign direct investment in this nation during the past year is $150$million.

Step-by-step solution

Given Information (part a, b)

The given information to find the amount of portfolio and foreign direct investment in this nation is as follows:

Portfolio Investments purchased less than$10\%$of shares.

Direct foreign investment purchases more than$10\%$of owner's share.

Find the amount of portfolio investment (part a). 

The term "portfolio investment" refers to the purchase of less than $10\%$of a company's stock.

As a result, this country's portfolio investment for the last year totaled $250$million.

$150$million dollars in bonds and $100$million dollars in stock.

Find the amount of foreign direct investment (part b).

Foreign direct investment is defined as the purchase of more than $10\%$of a company's stock. As a result, foreign direct investment in bonds totals $150$million.

Bank loans are not considered portfolio or foreign direct investment.