What Is the Difference Between Foreign Direct Investment and Foreign

question 12

Multiple Choice

What is the difference between foreign direct investment and foreign portfolio investment?

• A)Foreign direct investment involves purchases of foreign stock or bonds by individuals or firms, while foreign portfolio investment involves a firm purchasing or building a facility in a foreign country.
• B)Individuals engage in foreign portfolio investment, but only firms can engage in foreign direct investment.
• C)Foreign direct investment only takes place when governments make official purchases or foreign investments, while foreign portfolio investment takes place when firms, individuals, or the government purchase foreign investments.
• D)Foreign direct investment cannot give a low-income country access to funds and technology it would not otherwise have, but foreign portfolio investment does expand that access.
• E)Foreign direct investment guarantees a future return, but foreign portfolio investment involve a high degree of risk.

---

Definitions:

Credit Period

The time frame allowed by a creditor for a debtor to pay an outstanding bill or loan without incurring penalties or interest.

Cash Discount

An incentive offered by sellers to purchasers for paying an invoice promptly, usually defined as a percentage reduction in the invoice amount.

EOQ Model

Economic Order Quantity model; an inventory management method used to determine the optimum order quantity that minimizes the total inventory holding costs and ordering costs.

Shortage Costs

Costs that fall with increases in the level of investment in current assets.