Foreign Direct Investment - FDI

Loading the player...

What is a 'Foreign Direct Investment - FDI'

A foreign direct investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

BREAKING DOWN 'Foreign Direct Investment - FDI'

The investing company may make its overseas investment in a number of ways - either by setting up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company, or through a merger or joint venture.

The accepted threshold for a foreign direct investment relationship, as defined by the OECD, is 10%. That is, the foreign investor must own at least 10% or more of the voting stock or ordinary shares of the investee company.

An example of foreign direct investment would be an American company taking a majority stake in a company in China. Another example would be a Canadian company setting up a joint venture to develop a mineral deposit in Chile.

RELATED TERMS
  1. Foreign Investment

    Flows of capital from one nation to another in exchange for significant ...
  2. Direct Investment

    1. The purchase or acquisition of a controlling interest in a ...
  3. Foreign Portfolio Investment - ...

    Securities and other financial assets passively held by foreign ...
  4. Foreign Tax Credit

    A non-refundable tax credit for income taxes paid to a foreign ...
  5. Inward Investment

    The opposite of outward investment, an inward investment involves ...
  6. Foreign Debt

    An outstanding loan that one country owes to another country ...
Related Articles
  1. Personal Finance

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  2. Markets

    Top 6 Factors That Drive Investment In China

    FDI in China surpassed $100 billion in 2010, certain key factors drive foreign direct investment.
  3. Markets

    Cautionary Signs For International Investors

    "Going global" is a fashionable investing style, but investors should know the risks.
  4. ETFs & Mutual Funds

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  5. ETFs & Mutual Funds

    Go International With Foreign Index Funds

    As global trade continues to expand and the world's economies grow, spice up your portfolio with these exciting opportunities.
  6. Investing

    Foreign Direct Investment

    Foreign Direct Investment is a form of cross-border investment.
  7. Managing Wealth

    How a Strong Dollar is Affecting Your International Investments

    It is important to remember, whenever you invest overseas, whether its equity or capital, you are betting on both the performance of the asset itself and the currency.
  8. Markets

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  9. ETFs & Mutual Funds

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.
  10. Personal Finance

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
RELATED FAQS
  1. What is the difference between foreign portfolio investment and foreign direct investment?

    Learn about the significant differences between foreign direct investment and foreign portfolio investment, and how they ... Read Answer >>
  2. What nations are actively recruiting FDI (foreign direct investments)?

    Understand the concept of foreign direct investments, and learn which countries most enthusiastically pursue investments ... Read Answer >>
  3. What are some examples of a Foreign Institutional Investor (FII)?

    Discover some examples of foreign institutional investors, and learn information about the nature of foreign institutional ... Read Answer >>
  4. What does it mean when a country has little activity in its capital account?

    Know what a country's capital account represents and understand what the implications are if a country has little activity ... Read Answer >>
  5. How can an individual investor get involved in FDIs (foreign direct investments) ...

    Learn about what economists call foreign direct investment, and find out why individual investors may find it difficult to ... Read Answer >>
  6. How do businesses decide whether to do FDI via green field investments or acquisitions?

    When businesses decide to expand their operations to another country, one of the more important dilemmas they can face is ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center