Question

Indicate whether each of the following actions represents foreign direct investment or foreign portfolio investment.

a. Opening a retail store in a foreign country
b. Buying corporate stock in a retail chain in a foreign country

Answer 1

Answer: a. Foreign direct investment

b. Foreign portfolio investment

Explanation:

a. Opening a retail store in a foreign country is a foreign direct investment. This simply means a scenario whereby one establishes a business in another country that is different from ones own country. For example an American establishing a business in Japan is a foreign direct investment.

b. Buying corporate stock in a retail chain in a foreign country is a foreign portfolio investment. This is a situation when one buys shares, bonds etc in another country.