Test: International Banking - Banking Exams MCQ

Foreign Direct Investment involves establishing a direct business interest in a foreign country, such as buying or establishing a manufacturing business, building warehouses, or buying buildings.

Foreign Portfolio Investment refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.

Foreign portfolio investing is popular among several different types of investors. Common transactors of foreign portfolio investment include:

• Individuals
• Companies
• Foreign governments

The Insurance Amendment Bill 2021 was enacted by Parliament, increasing the FDI ceiling in the insurance sector from 49 percent to 74 percent.

FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. In FII, the companies only need to get registered in the stock exchange to make investments.

The Indian government has raised the FDI ceiling in the defense sector to 74 percent through the Automatic Route for companies seeking new defense industrial licenses, and to 100 percent through the Government Route wherever it is expected to result in access to current technology.

Need of Foreign Institutional Investors (FII):
(a) FIIs play an essential role in attracting non-debt foreign capital inflows, as well as developing India's capital market, lowering the cost of capital for Indian businesses, and improving corporate governance frameworks indirectly
(b) The FII contributes to India's currency reserves
(c) Financial innovation and the creation of hedging tools are aided by FII inflows

Foreign direct investment (FDI) is critical to a country's economic development. The entry of foreign cash has allowed India to improve its infrastructure, increase productivity, and increase employment. FDI also serves as a vehicle for acquiring sophisticated technology and mobilizing foreign exchange reserves.

Benefits of Foreign Portfolio Investment (FPI):
a) Portfolio diversification
b) Increases the liquidity of domestic capital markets
c) Promotes the development of equity markets
d) Access to markets with different risk-return characteristics