CFA Level I · CFA Level I Exam · Capital Flows and the FX Market
Which of the following is most likely to be classified as foreign direct investment rather than foreign portfolio investment?
Acquiring a 30% stake with board representation is most likely foreign direct investment, because it gives a lasting interest and significant influence over management. Small equity holdings and bond purchases are passive and are classified as foreign portfolio investment.
- AA pension fund buys a 2% stake in a foreign listed company
- BAn investor buys foreign government bonds in the secondary market
- CA firm acquires a 30% ownership stake in a foreign company and gains board representationCorrect
Explanation
Foreign direct investment reflects a lasting interest and significant influence, generally ownership of about 10% or more with influence over management. A small equity stake or bond purchase is portfolio investment.
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