Question

What is the difference between foreign direct investment and portfolio investment?

Short answer

1. Foreign direct investment:When a firm or business entity buys a minimum of tenth a part of a firm during a foreign country or starts a replacement business is taken into account as a remote direct investment (FDI).

Example: ABC ltd company purchases XYZ Ltd company in an exceedingly foreign company. For this ABC ltd would must supply domestic currency so as to shop for foreign currency.

2. Portfolio Investment: Portfolio Investment is solely financial investment.

Example: Buying government bonds, or deposited money within the foreign bank is taken into account as portfolio investment.

Step-by-step solution

 Concept Introduction

Foreign Exchange Market- Most countries have their own currency and market values. But not all the countries have their own currency, they need dollarized their currency. The countries which have different currency, needs a standard currency to participate in a very global economic market. Hence, the market where all the countries are exchanging or trading their currency is understood as interchange market.

Explanation of Solution  

Financial investment is split into two categories just in case of international investments i.e. Foreign direct investment (FDI) and Portfolio investments.

1. Foreign direct investment: When a firm or business entity buys a minimum of tenth a part of a firm during a foreign country or starts a replacement business is taken into account as a remote direct investment (FDI).

Example: ABC ltd company purchases XYZ Ltd company in an exceedingly foreign company. For this ABC Itd would must supply domestic currency so as to shop for foreign currency.

2. Portfolio Investment: Portfolio Investment is solely financial investment.

Example: Buying government bonds, or deposited money within the foreign bank is taken into account as portfolio investment.