Foreign Direct Investment - an Introduction

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"The growth in multinational organizations has resulted from foreign direct investment which has contributed to the fact that by the turn of the 21st century over a quarter of the global GDP is produced by just 200 companies. Foreign investment is the movement or accumulation of long term capital across political boundaries. It may take the form of cash, securities, plant, equipment, and other factors of production, such as managerial skills, technology, or know how. Categories of international capital flows appearing in the balance-of-payments accounts: namely, short term investments, portfolio investments and direct investments. The following are the types of investment for students to know clearly about the investment analysis and this will be useful for their finance homework. Short term investments, begins with a discussion of the criterion for making short-term covered investments when there are costs of transacting in the foreign exchange markets. Since short-term investments are important aspects of cash management, looks at short term borrowing decisions and a number of other aspects of the management of working capital in a multinational context. Portfolio investment considers international aspects of stock and bond investment decisions, paying particularly close attention to the benefits of international portfolio diversification.

It is believed that international diversification offers significant advantages over domestic diversifications, despites uncertainty about exchange rates. A section is included on the international capital asset pricing model. This model is used to compare the implications of internationally segmented versus integrated capital markets. Foreign direct investment usually involves some combination of the above. The transfer of this ""package"" of capital assets as well as the retention of control is what distinguishes FDI from portfolio investment. Example of Measuring Foreign direct investment is the United States...