Portfolio and direct investments Made by IFF 2 -3 students Kagermazova Diana Zhirkova Sargylana
Plan of presentation n Adequate capital flows n Portfolio Investment n Direct Investment n Differences n Test
Adequate capital flows n are basic and now universally acknowledged requirement for economic growth. The provision of capital is probably the most fundamental point of complementarity between portfolio and direct investment. Both forms of foreign investment provide capital flows beyond those available through domestic savings. Both serve to boost investment and economic activity in the domestic economy, allowing a higher level of economic growth than would otherwise be possible.
Benefits of Foreign Portfolio Investment n Foreign portfolio investment increases the liquidity of domestic capital markets, and can help develop market efficiency as well. Savers have more opportunity to invest with the assurance that they will be able to manage their portfolio, or sell their financial securities quickly if they need access to their savings. In this way, liquid markets can also make longer-term investment more attractive. n Foreign portfolio investment can also bring discipline and know-how into the domestic capital markets. n Foreign portfolio investors, without the advantage of an insider’s knowledge of the investment opportunities, are especially likely to demand a higher level of information disclosure and accounting standards, and bring with them experience utilizing these standards and a knowledge of how they function.
Benefits of Foreign Direct Investment n With its orientation to developing enterprises directly, foreign direct investment helps to strengthen economic potential. Sometimes, this is accomplished through greenfield investment, adding new and different economic activity and consequently diversifying the economy. Other times, this will be achieved through building up existing enterprises and enhancing their potential. Both of these activities will add a new and healthy element of increased competition to an economy, which is itself a powerful force for economic development. n Competition is one of the ways a foreign direct investment can have a broader effect on the economy. It spurs other enterprises to increase their own efficiency and productivity. Competition plays a major role in improving the allocation of resources, boosting the economic prospects of the domestic economy and worldwide sustainable economic development.
Differences n One of the most important distinctions between portfolio and direct investment to have emerged from this young era of globalization is that portfolio investment can be much more volatile. Changes in the investment conditions in a country or region can lead to dramatic swings in portfolio investment. For a country on the rise, FPI can bring about rapid development, helping an emerging economy move quickly to take advantage of economic opportunity, creating many new jobs and significant wealth. However, when a country’s economic situation takes a downturn sometimes just by failing to meet the expectations of international investors the large flow of money into a country can turn into a stampede away from it.
test
Adequate capital flows are basic and universally acknowledged requirement for. . . n capital markets n economic growth n portfolio investment n economy n direct investment
Foreign portfolio investment increases n capital flows n market price n the liquidity of domestic capital markets n development of equity markets n longer-term investment
foreign direct investment helps to n grow economic potential n strengthen economy n grow economy n strengthen economic potential
How many activities will add a new and healthy element of increased competition to an economy, which is itself a powerful force for economic development? n 1 n 2 n 3 n 4 n 5
One of the most important distinctions between portfolio and direct investment to have emerged from this young era of globalization is n that portfolio investment can be much more volatile n changes in the investment conditions in a country or region can lead to dramatic swings in portfolio investment n that FPI can bring about rapid development, helping an emerging economy move quickly to take advantage of economic opportunity n that FDI implies a controlling stake in a business n that FPI bring discipline and know-how into the domestic capital markets
