Foreign investment, quite simply, is investing in a country other than your

home one. It involves capital flowing from one country to another and
foreigners having an ownership interest or a say in the business. Foreign
investment is generally seen as a catalyst for economic growth and can be
undertaken by institutions, corporations, and individuals.

When making foreign investments, investors have to consider economic

factors as well as other risk factors, such as political instability and currency
exchange risk. These factors can be used to decide if an investment should
be direct or through a portfolio.

Foreign direct investment (FDI) involves establishing a direct business

interest in a foreign country, such as buying or establishing a manufacturing
business, building warehouses, or buying buildings.

Foreign direct investment tends to involve establishing more of a

substantial, long-term interest in the economy of a foreign country. Due to the
significantly higher level of investment required, foreign direct investment is
usually undertaken by multinational companies, large institutions, or venture
capital firms. Foreign direct investment tends to be viewed more favourably
since they are considered long-term investments, as well as investments in
the well-being of the country itself.

At the same time, the nature of direct investment, such as creating or

acquiring a manufacturing facility, makes it much more difficult to liquidate or
pull out of the investment. For this reason, direct investment is usually
undertaken with essentially the same attitude as establishing a business in
one's own country with the intention of making the business profitable and
continuing its operation indefinitely. Direct investment includes having control
over the business invested in and being able to manage it directly, but it also
involves more risk, work, and commitment.

Foreign portfolio investment (FPI) refers to investing in the financial assets

of a foreign country, such as stocks or bonds available on an exchange. This
type of investment is at times viewed less favourably than direct investment
because portfolio investments can be sold off quickly and are at times seen as
short-term attempts to make money, rather than a long-term investment in the
economy.

Portfolio investment typically has a shorter time frame for investment return
than direct investment. As with any equity investment, foreign portfolio
investors usually expect to quickly realize a profit on their investments.