Question

Foreign direct investment (FDI) is an investment made by a firm or individual in a country into business located in another country. FDI happens when an investor establishes a business in another country separate from his home country. Or a business owner could acquire foreign business assets, including establishing ownership or controlling interest in that company. Foreign direct investments are distinguished from portfolio investments in which investors can purchases equities of foreign-based companies. Foreign direct investments are commonly made in open economies that offer a skilled workforce and above-average growth for the investor, as opposed to tightly regulated economies. Foreign direct investment frequently involves more than just a capital investment. It may include provisions of management or technology as well. The key feature of foreign direct investment is that it establishes either effective control of, or at least substantial influence over, the decision-making of a foreign business.

Foreign direct investments can be made in a variety of ways, including the opening of another company in a foreign country, acquiring and controlling an existing foreign company, or by means of a merger or joint venture with a company.The threshold for a foreign investment is a minimum 10% ownership stake in a foreign-based company. However, that definition is flexible, there are instances where a firm can be established with less than 10% of the company's shares.

Singapore, US and UK are among the leading sources of FDI. Based on data that the FDI flows were $10.4 billion, which is a drop of 43% from the first half of last year

Please respond in 100-150 words

Answer 1

Foreign Direct Investment, has served as a key tool for expanding business beyond local boundaries wherein profit margins have significantly reduced over the years. It refers to the investments which companies and countries make so as to earn long term profits for themselves.

The increase in competition and the fact that all nations realize the importance of being free economies that promote trade is healthy, has largely led to the development of corporations which have resulted in capital being transferred from one country to another through the use of private or government companies which operate in other countries respectively.

This has resulted in a major change which has facilitated employment opportunities, cut throat competition and has increased the overall standard of living and demand patterns among the consumers. At the same time, because of these reasons, Multinational companies which engage in Foreign Direct Investment have also increased the technical capabilities of countries such as China and India which would have remained backward unless it was introduced.

To conclude one can say that Foreign Direct Investment is a boon for the economy of every country and serves as a driving force for long term economic development of the global community and increases the skills and quality of labor force respectively.

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