Final answer:
The discussion focuses on investment types, including domestic stock, foreign stock, and bonds, and factors influencing their potential risk and return. It highlights the importance of exchange rates in international investments and delineates between foreign direct investment and portfolio investment, illustrating the potential impacts of these decisions on investment strategies.
Step-by-step explanation:
Understanding these concepts is essential for business students who are studying finance or investment strategies. In general, higher risk is associated with the possibility of higher returns, and vice versa. This is demonstrated through the volatility of stock values compared to savings accounts and bonds, with stocks exhibiting the greatest fluctuation in value over time.
When evaluating international investments, such as a U.S. financial investor considering purchasing U.K. bonds, exchange rates play a critical role in potential profits or losses. For example, if the British pound is expected to increase in value against the U.S. dollar, bonds denominated in pounds could yield a higher return when converted back into dollars.
Furthermore, FDI involves purchasing a significant portion of a foreign company or starting a new enterprise abroad, like InBev's acquisition of Anheuser-Busch, which entails a long-term approach and managerial involvement. On the other hand, portfolio investment is generally less than ten percent of ownership and usually has a short-term perspective without assuming managerial responsibilities. Additionally, portfolio investments can be liquidated much faster than FDIs.