Portfolio Investments
January 13th, 2009
Question: describe the difference between foreign direct investment and foreign portfolio investment.?
who is more likely to engage in foreign direct investment- a corporation or an individual investor? who is more likely to engage in foreign portfolio investment?
Answer: Foreign direct investment can be described by directly investing into another country. For example, Ford has discovered they can increase their profits by building a car plant in Mexico. This is considered foreign direct investment because Ford is directly using Mexican workers as their means of production directly. Foreign portfolio investment can be explained through the example of an American business man investing in stocks in the Tokyo Stock Exchange. The business man is more passive in his investment. He is not going out of his way to start up a company or expand a company into the country. He is simply investing in to a company that already exists. So, the key difference between foreign direct investment and foreign portfolio investment is how involved the investor is. A corporation is more likely to engage in foreign direct investment because they will probably have enough money to expand. An individual is more likely to engage in foreign portfolio investment because the environment is simply better for them. The risk of foreign portfolio investment for an individual is less risky than expanding or creating their company to a different country.
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