Question

Regarding foreign investment, which of the following statements is true?

1) Foreign investment can be divided into three components: international trade, portfolio investment, and direct investment.
2) Portfolio investment involves investors who participate in the management of the firm in addition to receiving a return on their money.
3) Deals that result in the foreign investor's obtaining at least 10 percent of the shareholdings are classified as portfolio investments.

Answer 1

Foreign investment includes portfolio investment and direct investment. Portfolio investment does not involve management and is less than 10% ownership, whereas direct investment includes more than 10% ownership and typically includes management responsibilities.

Step-by-step explanation:

Regarding foreign investment, the true statement among the ones listed is as follows:

Foreign investment can be divided into two main components: portfolio investment and direct investment. Portfolio investment involves purchasing less than ten percent of a company and typically does not entail an active management role. In contrast, foreign direct investment (FDI) occurs when an investor purchases more than ten percent of a company, often assuming managerial responsibility.

Therefore, the correct statements would be:

1. Foreign investment can be divided into two main components: portfolio investment, and direct investment.
2. Portfolio investment is a purely financial investment that does not entail any management responsibility.
3. Deals that result in the foreign investor obtaining at least 10 percent of the shareholdings are classified as direct investments, not portfolio investments.