What is Foreign Direct Investment (FDI) and how does it impact the economy?

FDI boosts economic growth significantly.

• Creates jobs in local markets.

• Increases tax revenues for governments.

• Enhances productivity via technology transfer.

True or False: FDI is only beneficial for the country receiving the investment.

False

FDI benefits both host and investor.

• Job creation increases local employment.

• Technology transfer enhances local skills.

• Investors gain access to new markets.

FDI can lead to ___ in the host country.

Job creation

Explain how FDI contributes to infrastructure development in a host country.

FDI boosts host country infrastructure.

• Enhances transportation networks.

• Improves energy supply reliability.

• Attracts further investments.

What role does the Reserve Bank of India (RBI) play in regulating FDI?

The RBI oversees the implementation of FDI policy, monitors FDI inflows, and issues notifications regarding changes in FDI regulations.

True or False: All sectors in India allow 100% FDI without any restrictions.

False

Not all sectors permit 100% FDI.

• Certain sectors have restrictions.

• Insurance allows up to 74% FDI.

• Government approval may be needed.

What is the main difference between Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)?

FDI invests directly in assets.

• Involves control over assets.

• Focuses on long-term investment.

• Typically higher risk involved.

Fill in the blank: FDI enhances the ___ of local firms through technology transfer.

Productivity

Discuss the potential risks of relying heavily on FDI for economic growth.

Heavy reliance on FDI poses risks.

• Dependency on foreign capital.

• Risk of capital flight during downturns.

• Vulnerabilities if investors withdraw.

What factors influence foreign portfolio investments?

Various factors affect foreign portfolio investments.

• Economic growth affects returns.

• Interest rates shape investment decisions.

• Political stability reduces risks.

True or False: Foreign portfolio investments usually involve long-term ownership of assets.

False. Foreign portfolio investments are typically liquid and short-term, focused on financial returns rather than long-term ownership.

Explain how foreign portfolio investments can benefit local capital markets.

Foreign portfolio investments boost markets.

• Increases trading volumes significantly.

• Enhances market liquidity and depth.

• Promotes competition and efficiency.

Fill in the blank: FDI in India has fueled growth in key industries such as ___ and ___.

Automobiles and pharmaceuticals

What is the impact of foreign investors on local competition?

The entry of foreign investors promotes competition among local firms, encouraging them to enhance efficiency and innovate to maintain market share.

Describe the role of investment promotion agencies in India regarding FDI.

Investment agencies aid FDI in India.

• Act as single contact points.

• Facilitate investment processes.

• Provide essential investor support.

True or False: High levels of corruption can attract foreign portfolio investors.

False. High levels of corruption typically deter foreign portfolio investors due to risks of delays and lack of transparency.

What are the primary advantages of foreign direct investment for a host country?

Foreign direct investment benefits host countries.

• Creates new job opportunities.

• Enhances capital for growth.

• Transfers technology and skills.

Fill in the blank: The Foreign Exchange Management Act (FEMA) governs ___ in India.

Cross-border investments

How does FDI contribute to economic diversification in a host country?

FDI introduces investments into new sectors, which helps reduce reliance on traditional industries and spreads economic risk across different areas.

What are the potential disadvantages of foreign direct investment?

Disadvantages of Foreign Direct Investment

• Loss of control over assets

• Risk of capital flight

• Cultural and environmental issues

True or False: Portfolio investors have management control over the companies they invest in.

False. Portfolio investors do not gain management control; they are considered passive owners focused on financial returns.

Fill in the blank: The primary objective of a portfolio investor is to mitigate ___ by diversifying investments.

Risk

Foreign Direct Investment (FDI) typically involves a company from one country investing in ___ interests within another country.

Business interests

True or False: Foreign Direct Investment only benefits the foreign investors and not the host country's economy.

False. FDI benefits the host country's economy by creating jobs, increasing tax revenues, and transferring technology.

Fill in the blank: FDI can lead to ___ development by introducing new technologies and management practices in the host country.

Economic

What are the two main types of foreign investment discussed, and how do they differ?

Foreign investment types are different.

• FDI means direct business control.

• FPI is buying financial assets.

• FDI impacts management and operations.