Question

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of
a. U.S. foreign direct investment. It increases Columbia’s net capital outflow.
b. U.S. foreign portfolio investment. It increases Columbia’s net capital outflow.
c. U.S. foreign direct investment. It decreases Columbia’s net capital outflow.
d. U.S. foreign portfolio investment. It decreases Columbia’s net capital outflow.

Answer 1

Answer: Option C

Explanation: In the given case the mutual funds buying the stock is related to the country United states thus the capital is being purchased by a foreign company so the net capital flow in Columbia decreases as any income from these stocks whether from capital gain or from dividends now relates to American shareholder. This is not direct investment as the stocks are from the company that are originated in Columbia.