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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

Which of the following best describes foreign direct investment (FDI) by a multinational company?

FDI is investment that gives a firm lasting control or significant influence over an enterprise abroad, such as building a plant or buying a controlling stake. Portfolio holdings, bond purchases, exporting and deposits do not give that control, so they are not FDI.

  1. APurchase of a small share of a foreign company's listed equity purely for short-term trading gains
  2. BLending money to a foreign government by buying its bonds
  3. CInvestment that gives the firm lasting control or significant influence over an enterprise in another country, such as building a plant or acquiring a controlling stakeCorrect
  4. DExporting goods to a foreign distributor under a short-term supply contract
  5. Holding foreign currency deposits with an overseas bank

Explanation

FDI involves a lasting interest and control or significant influence over a foreign enterprise, for example a new factory (greenfield) or acquisition of a controlling stake. Small share purchases for trading and bond holdings are portfolio investment, and exporting or holding deposits does not create an overseas productive presence.

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