What Is Foreign Direct Investment? Explain With Example.........

Foreign Direct Investment or FDI is the investment in a country by some foreign country. It is usually a physical investment like building a factory or an office. It usually includes a parent company, who in the effort of expanding establishes its office as a permanent company in a foreign country. In this way the parent company gets the level of Multinational company and its investment is known as FDI for the host country. Importance of expansion is very necessary for all nature of businesses to sustain long term survival but FDI is very important for the host country as well. For example, developing countries are the most attractive growing markets for almost all kinds of businesses therefore, if a company makes FDI in  developing country then it will give benefit to the company and the country both. Benefits usually increase high profits for the company, and increase in employment, economic growth etc. For the country. In addition to that there are a number of risks which are always there in FDI for both the country and the company.

Foreign Direct Investment plays a vital role in the development of a country's economy. It is an essential part of any economic system.

The advantages include:

• Huge amount of capital invested in a country.
• Employment opportunity in developing countries
• Higher amount of production level
• Wide spectrum of opportunities in trading goods and services
• Knowledge transfer and technology diffusion.

Foreign Direct Investment refers to a special investment from one country to another focusing on construction of a fixed asset for another company. It is also used to refer to investments that have a lasting interest in the company.

Following are the different types of FDI:

- Outward-Bound FDI: Is a kind of investment that is backed by government against all kinds of risks. It features tax incentives and risk coverage.
- Inward -bound FDI: Is another kind of investment. It is affected by interest loans, tax breaks, grants, subsidies etc.
- Vertical FDI:
- Horizontal FDI: Is then investment by a multinational company in similar business in another country.
- Vertical FDI: When a multinational owns some shares of a foreign investment.

I want the answer in detail of the question asked by me i.e. Risk Associated With Foreign Direct Investment. How Do These Risks Differ From Those Encountered In Domestic Investment?    Please provide a complete answer.    Rgds,    Santoshi R