Foreign Portfolio Investment (FPI) involves investing in financial assets such as stocks and bonds in a foreign country, providing investors with diversification and potential returns. Unlike Foreign Direct Investment, FPI does not offer control over the businesses in which investments are made, making it more liquid but also more volatile and sensitive to market changes.

Foreign Portfolio Investment

Financial Assets

Stocks and bonds

Foreign country

Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. By diversifying, investors can potentially achieve more stable returns and mitigate the impact of market volatility on their portfolios.

Diversification

Potential Returns

Foreign direct investment (FDI) involves a firm or individual from one country making a substantial investment in business interests in another country, typically through ownership or control of a foreign company. It is a critical driver of economic growth, providing capital, technology, and management expertise to host countries while offering investors access to new markets and resources.

Foreign Direct Investment

Control over businesses

Liquidity refers to the ease with which an asset can be converted into cash without affecting its market price. High liquidity in markets ensures that transactions can be executed quickly and with minimal price fluctuations, enhancing market stability and investor confidence.

Liquidity

Volatility refers to the degree of variation in the price of a financial instrument over time, reflecting the level of risk and uncertainty associated with its value. It is a critical concept for investors and traders as it influences decision-making, risk management, and the pricing of derivatives such as options.

Concepts

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