Which one of the following is a type of Foreign Direct Investment?

Correct option is A

Foreign Direct Investment (FDI) refers to investments made by a foreign entity in a country’s business operations to gain ownership or control. Greenfield Investment is a type of FDI where a company starts a new venture by building infrastructure, facilities, or production units from the ground up in a foreign country.

• Greenfield Investment (Option 1): Correct. This is a direct form of FDI, as it involves setting up new business operations, which generates jobs and boosts local infrastructure.
• Foreign Portfolio Investment (Option 2): Incorrect. This involves investing in stocks or bonds of a foreign company without gaining control or significant influence, which is classified as an indirect investment.
• Qualified Foreign Investment (Option 3): Incorrect. This term refers to foreign investments that qualify under certain regulatory frameworks but are more aligned with portfolio investment.
• Commercial Loans (Option 4): Incorrect. Loans are a form of debt and are not considered a type of FDI as they do not involve ownership or control over assets.

Information Booster:

Types of FDI:

1. Greenfield Investment: A company builds new facilities in a foreign country. Example: Setting up factories or offices.
2. Brownfield Investment: A foreign company acquires or leases existing facilities in another country to start operations.

FDI is critical for a host country as it brings in capital, technology, and jobs, contributing to economic growth.

Additional Knowledge:

• Foreign Portfolio Investment (FPI): Refers to passive investments in financial assets like stocks and bonds. It does not provide control over business decisions.
• Qualified Foreign Investment: Often refers to regulated investments in financial markets under specific rules (e.g., Qualified Foreign Institutional Investors - QFIIs in China).
• Commercial Loans: Are debt instruments where entities borrow funds, typically for a fixed period and interest, but these are not investments involving ownership or control.

FDI stands apart because it signifies ownership, control, and long-term commitment.