Question

1. Discuss the factors that affect the following

1. International Portfolio Investment
2. Direct Foreign Investment

Answer 1

a) The factors which impact the International Portfolio Investment are as follows:

-- Tax Rates: The rates of taxation on interest and dividend effect the international portfolio investment. The investors often prefer to invest in a nation where the taxes on the earned interest or dividend are low.

-- Interest Rates: The high interest rates often attract the investors. Money often flows to nations that offer high rates of interest. However, the local currencies must not weaken for long-term as well

-- Exchange Rates: The international portfolio investment is influenced by the exchange rates. When investors invest in securities in a global nation, their return are often affected with the change in the security's value and fluctuations in the currency's value in which security is managed. Investors often prefers to shift investment if the currency's value in country they invest weakens higher than anticipated

b) The factors which impact the Foreign Direct Investment (FDI) are as follows:

-- Raw material availability: The availability trade facilitation instruments would be attracting more investors because a nation endowed with raw materials causes a reduction in costs of production.

-- Government policies and regulations on investment: The government policies that favor the foreign investors more than the local investors usually encourages the foreign direct investment within its markets

-- Tax regulations: The favourable taxation policies encourage the foreign investors, and on contrary the double taxation for instance discourages the foreign investors in a country

-- Economic growth of a nation: The nations that have high rates of growth in economy tend to have variety of consumers. Moreover a nation that progresses economically are likely to encourage more foreign direct investment as the economic growth boosts the confidence of investors.

-- Political security and stability of a nation: The secure environments and systems attracts more foreign investors

-- Wage rate: The countries with low wage rate with high productivity skills often attracts FDI

-- Transportation structure: A good transport infrastructure countries are attracted by the investors