1. Why FDI is increasing in International business operation in spite of greater risk
compared to international trade?
FDI, stands for Foreign Direct Investment, is investment of foreign assets into domestic
structures, equipment, and organizations. It does not include foreign investment into the
stock markets. Foreign direct investment is thought to be more useful to a country than
investments in the equity of its companies because equity investments are potentially hot
money which can leave at the first sign of trouble, whereas FDI is durable and generally
useful whether things go well or badly.
According to the International Monetary Fund, foreign direct investment, commonly
known as FDI, refers to an investment made to acquire lasting or long-term interest in
enterprises operating outside of the economy of the investor. The investment is direct
because the investor, which could be a foreign person, company or group of entities, is
seeking to control, manage, or have significant influence over the foreign enterprise.
FDI is a major source of external finance which means that countries with limited amounts
of capital can receive finance beyond national borders from wealthier countries. Exports
and FDI have been the two key ingredients in China’s rapid economic growth. According
to the World Bank, FDI and small business growth are the two critical elements in
developing the private sector in lower-income economies and reducing poverty.
The investing company may make its overseas investment in a number of ways – either by
setting up a subsidiary or associate company in the foreign country, by acquiring shares of
