Solution Manual For Financial Statement Analysis, 13th Edition By Charles H. ...
Foreign investment
1. I N T E R N A T I O N A L B U S I N E S S
FOREIGN
INVESTMENT
BY; RICHAVERMA(BCH2018064)
DIYA GUPTA(BCH2018037)
B.COM(H)
2. Outline of Topics
What is the FOREIGN investment?
Types
Methods
Routes
Flows
Foreign investment in India
3. Foreign investment is when a domestic investor
decides to purchase ownership of an asset in a
foreign country. It involves cash flows moving
from one country to another to execute the
transaction. If the ownership stake is large
enough, the foreign investor may be able to
influence the entity’s business strategy.
FOREIGN INVESTMENT
4. The effect of foreign investment, however,
varies from country to country.
It can affect the factor productivity of the
recipient country and can also affect the
balance of payments.
Foreign investment provides a channel
through which countries can gain access to
foreign capital.
5. TYPES OF FOREIGN INVESTMENT
Foreign Direct Investment (FDI)
Foreign Portfolio Investment (FPI)
Foreign Institutional Investment (FII)
6. FDI is an investment made by a company or
individual who is an entity in one country, in
the form of controlling ownership in
business interests in another country.
FDI could be in the form of either
establishing business operations or entering
into joint ventures by mergers and
acquisitions, building new facilities, etc.
F
D
I
7. There
are
two
types
of
foreign
direct
investme
nt:
1 – HORIZONTAL INVESTMENT
When an investor establishes the same type of
business in a foreign country in which he operates in
his country or when two companies of the same
business but operating in different countries merge, it
is called a Horizontal investment.
2 - VERTICAL INVESTMENT
When companies of one country merge with the
company of another country or acquire the company of
another country but both the company are not in the
same business rather they are related with each other
like manufacturing company of one country acquire the
business of another country who is supplying raw
material for production.
8. Foreign Portfolio Investment (FPI) means investing
in the financial assets of a foreign country, such as
stocks or bonds available on an exchange. This kind
of investment is considered less favourable than
direct investment because portfolio investment can
be sold off quickly and these are at times seen as
short term attempts to make money, rather than a
long-term investment in the economy.
F
P
I
9. Investments made in the shares of a foreign
country.
Investment by purchasing the bonds floated by
a foreign government.
Purchase of shares in a foreign company.
Purchase of bonds issued by a foreign
government.
Acquisition of assets in a foreign country.
A few examples of FPI-
F
P
I
10. Foreign Institutional Investors (FIIs) are large
companies that invest in countries other than where
their headquarters are located. The term FII is most
commonly used in India, where it refers to outside
entities investing in the nation’s financial markets.
However, this term is also used officially in China. FIIs
can include hedge funds, insurance companies, pension
funds, investment banks and mutual funds.
F
I
I
11. Some of the countries with the highest volume of
foreign institutional investments are those with
developing economies, which generally provide
investors with higher growth potential than mature
economies. This is one reason FIIs are commonly
found in India, which has a high-growth economy and
attractive individual corporations to invest in. All FIIs
in India must register with the Securities and
Exchange Board of India (SEBI) to participate in the
market.
F
I
I
12. Methods of Foreign Investment
THERE ARE TWO METHODS OR STRATEGIES FOR THIS INVESTMENT:
Greenfield Investment: – In this strategy, the company starts its business operation in
another country from zero means they have to set up their own factory, plant, and
offices. For e.g., Domino’s and McDonald’s are US-based companies that have started
his business in India from zero now they are leading in there segment.
Brownfield Investment: – In this strategy, the company does not start its business from
scratch rather go by merger or acquisition like recently Walmart inc of US has acquired
the Flipkart which is an Indian company and gets all the assets and liability of the
Flipkart.
13. Routes of Foreign Investment Below
are the two routes –
Automatic route: – In Automatic route foreign
company/institutions does not require any approval of the
government or any agencies for making an investment in
another country.
Approval route:- In approval route foreign company/institutions
requires to get approval from government or any specified body
of that country where they want to invest.
1.
2.
14. FDI INFLOWS IN INDIA FROM 2015-2020
source- https://m.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1307
15. Foreign Investment in India
Foreign Investment in India has been the direct outcome of the
liberal trade policies undertaken and implemented by successive
governments. The liberalization program of the government aims
at rapid and substantial growth of the country's economy and
besides a harmonious integration with global economy. While
foreign investment in India comprises of investments made by
overseas companies in India, the reverse i.e. outflow of foreign
investment from India is also prevalent in the Indian economy.
Foreign investment in India has created some wonderful
opportunities in the country in terms of creating employment and
improving the basic infrastructure of the country.
16. Foreign Investment Policy in India
THE GOVERNMENT HAS UNDERTAKEN VARIOUS LIBERAL POLICY
DECISIONS TO MAKE THE WHOLE PROCESS OF FOREIGN
INVESTMENT IN INDIA HASSLE FREE
1. The list of industries that are eligible for automatic approval of foreign
investment has been expanded by the Ministry of industry.
2. The upper limit of the rate of foreign investment in India has been raised to
74% from the earlier 51%; in some cases, this has been increased to 100%.
3. Indian companies will no longer need prior clearance from the
Reserve Bank of India.
4. The exchange control regulations have been amended by the government.
17. 5. The ban against the use of foreign brand names/trademarks has been
removed.
6. The corporate rate of corporate tax on foreign companies has been reduced
from 65% to 55% by the government in the annual budget of 1994-95.
7. The government reduced long term capital gains rate for overseas companies
to 20%
8. Under the Indian Income Tax Act, export earnings are exempted from corporate
income tax for both overseas and domestic firms.
9. 100% inflow of foreign investment is permitted in strategic sectors such as
roads, ports, tunnels, highways, and harbors on the condition that the total
investment in any of the sectors should not exceed ` 1500 crore.
10. Any increase within the prescribed limit does not require permission
from the foreign investment promotion board.
18. 10 Countries That Receive the Most Foreign
Direct Investment
United States
China
Singapore
Brazil
United Kingdom
Hong Kong
France
India
Canada
Germany
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
- $47 billion in 2019
- $40 billion in 2019
- $251 billion in 2019
- $140 billion in 2019
- $110 billion in 2019
- $75 billion in 2019
- $61 billion in 2019
- $55 billion in 2019
- $52 billion in 2019
- $49 billion in 2019
source- https://seasia.co/2020/02/02/top-10-countries-that-attracted-the-most-foreign-direct-investment-in-2019
