Question

Using suitable example, distinguish between Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII).

Hint:

FDI = Long-term + Control. FII = Short-term + No control.

Answer 1

Basis	Foreign Direct Investment (FDI)
Meaning	Investment made by a foreign company in physical assets like land, building, plant and machinery in another country.
Example	Establishment of a manufacturing unit in India by Toyota.
Nature	Long-term investment aimed at ownership and control.
Stability	Relatively stable and less volatile.

 

Basis	Foreign Institutional Investment (FII)
Meaning	Investment in financial assets like shares and bonds by foreign institutions.
Example	A foreign hedge fund buying shares in Indian stock market.
Nature	Portfolio investment without control.
Stability	More volatile and sensitive to market trends.