Question

Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two ?

(a) FII helps bring better management skills and technology, while FDI only brings in capital.

(b) FII helps in increasing capital availability in general, while FDI only targets specific sectors.

(c) FDI flows only into the secondary market while FII targets primary market

(d) FII is considered to be more stable than FDI

Answer 1

(b) Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practises and better management skills and even technology transfer.