PPT: International Capital Movements | Business Economics for CA Foundation PDF Download

 Page 1


International Capital 
Movements
Page 2


International Capital 
Movements
Types of Foreign Capital
Foreign Aid or Assistance
Bilateral Aid: Direct 
intergovernmental grants
Multilateral Aid: 
Assistance from 
international 
organizations
Tied Aid: Aid with specific 
conditions
Foreign Grants: Voluntary 
transfers of resources
Borrowings
Direct Intergovernmental 
Loans
Loans from International 
Institutions (World Bank, 
IMF, ADB)
Soft Loans from 
organizations like IDA
External Commercial 
Borrowing
Trade Credit Facilities
Other Types
Deposits from Non-
Resident Indians (NRIs)
Foreign Portfolio 
Investment (FPI): 
Investments in bonds, 
stocks
Foreign Direct Investment 
(FDI): Investments in 
enterprises
Page 3


International Capital 
Movements
Types of Foreign Capital
Foreign Aid or Assistance
Bilateral Aid: Direct 
intergovernmental grants
Multilateral Aid: 
Assistance from 
international 
organizations
Tied Aid: Aid with specific 
conditions
Foreign Grants: Voluntary 
transfers of resources
Borrowings
Direct Intergovernmental 
Loans
Loans from International 
Institutions (World Bank, 
IMF, ADB)
Soft Loans from 
organizations like IDA
External Commercial 
Borrowing
Trade Credit Facilities
Other Types
Deposits from Non-
Resident Indians (NRIs)
Foreign Portfolio 
Investment (FPI): 
Investments in bonds, 
stocks
Foreign Direct Investment 
(FDI): Investments in 
enterprises
Foreign Direct Investment (FDI)
FDI refers to a long-term investment made by a resident entity in one economy into an enterprise located in 
another economy, reflecting a lasting interest and control (typically >10% shares).
Key Components
Equity Capital: Funds invested as shares
Reinvested Earnings: Profits reinvested
Other Direct Capital: Intra-company loans
Forms of Direct Investments
Opening of Overseas Companies
Joint Ventures with local firms
Joint Development of Natural Resources
Acquisitions of companies in host country
Horizontal FDI
Same business operation 
abroad as in home country
Vertical FDI
Different stages of production 
process in foreign country
Conglomerate FDI
Unrelated businesses in a 
foreign country
Page 4


International Capital 
Movements
Types of Foreign Capital
Foreign Aid or Assistance
Bilateral Aid: Direct 
intergovernmental grants
Multilateral Aid: 
Assistance from 
international 
organizations
Tied Aid: Aid with specific 
conditions
Foreign Grants: Voluntary 
transfers of resources
Borrowings
Direct Intergovernmental 
Loans
Loans from International 
Institutions (World Bank, 
IMF, ADB)
Soft Loans from 
organizations like IDA
External Commercial 
Borrowing
Trade Credit Facilities
Other Types
Deposits from Non-
Resident Indians (NRIs)
Foreign Portfolio 
Investment (FPI): 
Investments in bonds, 
stocks
Foreign Direct Investment 
(FDI): Investments in 
enterprises
Foreign Direct Investment (FDI)
FDI refers to a long-term investment made by a resident entity in one economy into an enterprise located in 
another economy, reflecting a lasting interest and control (typically >10% shares).
Key Components
Equity Capital: Funds invested as shares
Reinvested Earnings: Profits reinvested
Other Direct Capital: Intra-company loans
Forms of Direct Investments
Opening of Overseas Companies
Joint Ventures with local firms
Joint Development of Natural Resources
Acquisitions of companies in host country
Horizontal FDI
Same business operation 
abroad as in home country
Vertical FDI
Different stages of production 
process in foreign country
Conglomerate FDI
Unrelated businesses in a 
foreign country
Characteristics of FDI
Control
The investor retains control over the use of 
invested capital and decision-making to the 
extent of its equity participation.
Lasting Interest
Long-term relationship between the direct 
investor and the enterprise, with significant 
influence on management.
Conglomerate Foreign Direct Investment
Occurs when an investor makes a foreign investment in a business unrelated to its existing business in 
home country, often as a joint venture.
Two-Way Direct Foreign Investments
Reciprocal investments between countries when certain industries are more advanced in one nation 
while others are more efficient in different nations.
Page 5


International Capital 
Movements
Types of Foreign Capital
Foreign Aid or Assistance
Bilateral Aid: Direct 
intergovernmental grants
Multilateral Aid: 
Assistance from 
international 
organizations
Tied Aid: Aid with specific 
conditions
Foreign Grants: Voluntary 
transfers of resources
Borrowings
Direct Intergovernmental 
Loans
Loans from International 
Institutions (World Bank, 
IMF, ADB)
Soft Loans from 
organizations like IDA
External Commercial 
Borrowing
Trade Credit Facilities
Other Types
Deposits from Non-
Resident Indians (NRIs)
Foreign Portfolio 
Investment (FPI): 
Investments in bonds, 
stocks
Foreign Direct Investment 
(FDI): Investments in 
enterprises
Foreign Direct Investment (FDI)
FDI refers to a long-term investment made by a resident entity in one economy into an enterprise located in 
another economy, reflecting a lasting interest and control (typically >10% shares).
Key Components
Equity Capital: Funds invested as shares
Reinvested Earnings: Profits reinvested
Other Direct Capital: Intra-company loans
Forms of Direct Investments
Opening of Overseas Companies
Joint Ventures with local firms
Joint Development of Natural Resources
Acquisitions of companies in host country
Horizontal FDI
Same business operation 
abroad as in home country
Vertical FDI
Different stages of production 
process in foreign country
Conglomerate FDI
Unrelated businesses in a 
foreign country
Characteristics of FDI
Control
The investor retains control over the use of 
invested capital and decision-making to the 
extent of its equity participation.
Lasting Interest
Long-term relationship between the direct 
investor and the enterprise, with significant 
influence on management.
Conglomerate Foreign Direct Investment
Occurs when an investor makes a foreign investment in a business unrelated to its existing business in 
home country, often as a joint venture.
Two-Way Direct Foreign Investments
Reciprocal investments between countries when certain industries are more advanced in one nation 
while others are more efficient in different nations.
Foreign Portfolio Investment (FPI)
FPI refers to the flow of financial capital without the investor gaining ownership or control. Examples include:
An Italian company depositing funds in an Indian bank
A French citizen buying a bond from a Swiss company
Unlike FDI, portfolio capital generally invests in financial instruments like stocks and bonds through capital 
markets.
Key Characteristics
Investors do not exercise voting rights or 
control
Primary goal is profitable return on 
investments
Typically involves holding less than 10% of 
company's stake
Usually short-term and speculative in nature
Capital Flow Patterns
Flows to countries with higher returns 
potential
Can rapidly move between countries
May lead to financial crises when investor 
confidence disrupts
Impacts balance of payments and exchange 
rates immediately