Foreign Direct Investment (fdi)
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FOREIGN DIRECT INVESTMENT (FDI) •
FDI is a long –term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the investor is based.
•
FDI relationship consists of a parent enterprise and a foreign affiliate, which together form a Transnational Corporation.
"The only way to get rid of responsibilities is to discharge them."
TYPES OF FDI
Greenfield Investment
Merger & Acquisitions
Horizontal FDI
Vertical FDI
Backward Vertical FDI Forward Vertical FDI
"Live in such a way that you would not be ashamed to sell your parrot to the town gossip."
COSTS & BENEFITS OF FDI I)HOST COUNTRY
Benefits to the host country:
Availability of scarce factors of production. Improvements on BOP. Building of economic & social infrastructure. Fostering of economic linkages. Strengthening ofitthe govt. "When small men begin to cast long shadows, is a sure sign thatbudget. the sun is
COST TO THE HOST COUNTRY
Strained BOP following reverse flow. Dependence on the import of technology Employment of expatriates. Inappropriate technology Unhealthy competition Cultural & political interference.
"Show me a man who cannot bother to do little things and I'll show you a man who cannot be trusted to do big things."
II) HOME COUNTRY
BENEFITS
•
Availability of raw material Improvement in BOP Employment generation Revenue to the govt. Improved political relations
COSTS • •
Undesired outflow of factors of production Possibility of conflict with the host-country government.
"He who wishes to be rich in a day will be hanged in a year."
STRATEGIES FOR FDI
FIRM-SPECIFIC STRATEGY
COST-ECONOMISING STRATEGY
STRATEGY OF ENTERING IN NEW AREAS
CROSS-INVESTMENT STRATEGY
JOINT-VENTURE WITH A RIVAL FIRM
INVESTMENT MODE STRATEGY:MERGER VS GI "We make a living by what we get, but we make a life by what we give."
PORTFOLIO CAPITAL Represents passive holding of securities such foreign stocks, bonds or other financial assets, none of which entails active Mgt. or control of securities issuer by the investor.
Exmaples:
Purchase of shares in a Foreign Co. Purchase of bonds issued by a Foreign Govt. Acquisition of financial assets in a foreign country Loans to members by WB "You grow up the day you have your first real laugh--at yourself."
DIFFERENCE B/W PORTFOLIO INVESTMENT AND FDI PI
FDI Minority No control Purely financial Assets ,bonds &stocks
Majority Direct control Investment in factories , goods etc.
"Consider the postage stamp; its usefulness consists in the ability to stick to one thing until it gets there."
MOTIVES
Risk-Diversification:- to earn higher risk adjusted return. Depends on the variability of the foreign exchange rate.
Capital Growth:- level of investment tends to fall in investing nation.
Effect on trade term:
Short Run – BOP Long Run – BOP
"With time and patience, the mulberry leaf becomes satin. With time and patience the mulberry leaf becomes a silk gown."
PI FOR NRI’S
Can purchase Shares & Convertible Debentures Schedule 2 & 3 OCB’s Designated Branches Can authorize Indian residents or Brokers
"Don't let life discourage you; everyone who got where he is had to begin where he was."
GENERAL PROVISIONS
Basis Purchase/sale Registered broker Market price Bank branch Mode of payment Ceiling
NonRepatriation
Per investor Per investee company
Repatriation sale / maturity proceeds
Repatriation
Repatriation basis-FCNR/NRE/NRO Non-repatriation-in NRO account
Permission
Sale/transfer of shares or bonds by NRI’s to residents
Form TS 1. Letter of consent For repatriation
General exemption for transfer of rupee securities by non –residents as gifts.
Such shares held with the permission of RBI B/w relatives.
Transfer of rupee securities to non-residents as gift.
Name Relationship Reason
PI SCHEME FOR FIIS Schedule 2 of the Regulation 5(2) FIIs- institutional portfolio Mgr, Asset Mgt Cos, Pension funds. Investment in primary & secondary stock market as well as treasure bills etc. on repatriation basis. Permission for FCA/NRRA Provision Registration RBI permission-not necessary Registered broker Manner of investment
Limit
Individual Total holding Holding in Govt securities :- 70%30 , 100% debt.
Remittances
Investment in govt. undated securities , treasure bills , non-convertible debentures. "The happiest person is the person who thinks the most interesting thoughts."
FDI is a long –term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the investor is based.
•
FDI relationship consists of a parent enterprise and a foreign affiliate, which together form a Transnational Corporation.
"The only way to get rid of responsibilities is to discharge them."
TYPES OF FDI
Greenfield Investment
Merger & Acquisitions
Horizontal FDI
Vertical FDI
Backward Vertical FDI Forward Vertical FDI
"Live in such a way that you would not be ashamed to sell your parrot to the town gossip."
COSTS & BENEFITS OF FDI I)HOST COUNTRY
Benefits to the host country:
Availability of scarce factors of production. Improvements on BOP. Building of economic & social infrastructure. Fostering of economic linkages. Strengthening ofitthe govt. "When small men begin to cast long shadows, is a sure sign thatbudget. the sun is
COST TO THE HOST COUNTRY
Strained BOP following reverse flow. Dependence on the import of technology Employment of expatriates. Inappropriate technology Unhealthy competition Cultural & political interference.
"Show me a man who cannot bother to do little things and I'll show you a man who cannot be trusted to do big things."
II) HOME COUNTRY
BENEFITS
•
Availability of raw material Improvement in BOP Employment generation Revenue to the govt. Improved political relations
COSTS • •
Undesired outflow of factors of production Possibility of conflict with the host-country government.
"He who wishes to be rich in a day will be hanged in a year."
STRATEGIES FOR FDI
FIRM-SPECIFIC STRATEGY
COST-ECONOMISING STRATEGY
STRATEGY OF ENTERING IN NEW AREAS
CROSS-INVESTMENT STRATEGY
JOINT-VENTURE WITH A RIVAL FIRM
INVESTMENT MODE STRATEGY:MERGER VS GI "We make a living by what we get, but we make a life by what we give."
PORTFOLIO CAPITAL Represents passive holding of securities such foreign stocks, bonds or other financial assets, none of which entails active Mgt. or control of securities issuer by the investor.
Exmaples:
Purchase of shares in a Foreign Co. Purchase of bonds issued by a Foreign Govt. Acquisition of financial assets in a foreign country Loans to members by WB "You grow up the day you have your first real laugh--at yourself."
DIFFERENCE B/W PORTFOLIO INVESTMENT AND FDI PI
FDI Minority No control Purely financial Assets ,bonds &stocks
Majority Direct control Investment in factories , goods etc.
"Consider the postage stamp; its usefulness consists in the ability to stick to one thing until it gets there."
MOTIVES
Risk-Diversification:- to earn higher risk adjusted return. Depends on the variability of the foreign exchange rate.
Capital Growth:- level of investment tends to fall in investing nation.
Effect on trade term:
Short Run – BOP Long Run – BOP
"With time and patience, the mulberry leaf becomes satin. With time and patience the mulberry leaf becomes a silk gown."
PI FOR NRI’S
Can purchase Shares & Convertible Debentures Schedule 2 & 3 OCB’s Designated Branches Can authorize Indian residents or Brokers
"Don't let life discourage you; everyone who got where he is had to begin where he was."
GENERAL PROVISIONS
Basis Purchase/sale Registered broker Market price Bank branch Mode of payment Ceiling
NonRepatriation
Per investor Per investee company
Repatriation sale / maturity proceeds
Repatriation
Repatriation basis-FCNR/NRE/NRO Non-repatriation-in NRO account
Permission
Sale/transfer of shares or bonds by NRI’s to residents
Form TS 1. Letter of consent For repatriation
General exemption for transfer of rupee securities by non –residents as gifts.
Such shares held with the permission of RBI B/w relatives.
Transfer of rupee securities to non-residents as gift.
Name Relationship Reason
PI SCHEME FOR FIIS Schedule 2 of the Regulation 5(2) FIIs- institutional portfolio Mgr, Asset Mgt Cos, Pension funds. Investment in primary & secondary stock market as well as treasure bills etc. on repatriation basis. Permission for FCA/NRRA Provision Registration RBI permission-not necessary Registered broker Manner of investment
Limit
Individual Total holding Holding in Govt securities :- 70%30 , 100% debt.
Remittances
Investment in govt. undated securities , treasure bills , non-convertible debentures. "The happiest person is the person who thinks the most interesting thoughts."
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