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Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are two important forms of international capital flows through which funds move from one country to another. Both are significant components of international business finance because they provide foreign capital, influence exchange rates, affect financial markets, and contribute to economic development. However, they differ substantially in terms of ownership, control, investment objectives, risk, liquidity, and duration of investment. Foreign Direct Investment refers to an investment made by an individual, company, or institution of one country in a business or productive asset located in another country with the intention of establishing a lasting interest and obtaining a significant degree of influence or control over the foreign enterprise. FDI may take the form of establishing a new subsidiary, constructing a new production facility, acquiring an existing foreign company, or expanding an existing overseas operation. For example, when a multinational company establishes a manufacturing plant in India, it represents FDI because the foreign investor participates directly in business operations and management. FDI can be classified into greenfield investment and brownfield investment. Greenfield FDI occurs when a foreign investor establishes a completely new business facility in another country. Brownfield investment generally involves acquiring, merging with, or taking over an existing foreign business. FDI may also be horizontal, vertical, or conglomerate. Horizontal FDI occurs when a company establishes similar business operations abroad, while vertical FDI involves investment at different stages of the production or supply chain. Conglomerate FDI occurs when investment is made in an unrelated business sector. Foreign Portfolio Investment, on the other hand, refers to investment by foreign individuals or institutions in financial assets of another country without obtaining significant managerial control over the enterprises in which they invest. These financial assets may include shares, bonds, mutual funds, government securities, and other marketable securities. For example, when a foreign institutional investor purchases shares of an Indian listed company through the stock market, the investment is generally classified as FPI. The primary objective is usually to earn __________ ___ ______ ____ ____ _____ _________ __________ ___ _______.
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