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Consider the following statements regarding FDI and FPI and choose the correct statement from the alternatives given below 1. Foreign Direct Investment (FDI) is regarded where an investor has a stake of less than 10 percent. 2. Foreign Institutional Investment (FII) is regarded where an investor has a stake of more than 10 percent.

Consider the following statements regarding FDI and FPI and choose the correct statement from the alternatives given below 1. Foreign Direct Investment (FDI) is regarded where an investor has a stake of less than 10 percent. 2. Foreign Institutional Investment (FII) is regarded where an investor has a stake of more than 10 percent. Correct Answer None of the above

The correct answer is option 4, i.e None of the above.

  • Foreign Direct Investment (FDI) is involved in setting up firms to produce goods and services. That is why it is called “direct” institution.
  • Foreign Institutional Investment (FII) on the other hand buys financial assets for profits.
  • In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), it was decided to follow the international practice and lay down a broad principle that,
    • where an investor has a stake of 10 percent or less in a company, it will be treated as FII and,
    • where an investor has a stake of more than 10 percent, it will be treated as FDI. Hence, both statements 1 and 2 are NOT correct.

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