Content
➢ Introduction
➢ Objective
➢ FDI
➢ Conclusion
➢ References
Introduction
The seminar on Foreign Direct Investment (FDI) aimed to explore the concept,
significance, trends, and impacts of FDI on the global economy. The event brought
together experts, academicians, and students to discuss the dynamics of FDI in the
modern world, its benefits, challenges, and the role it plays in the development of
both host and home countries.
Objectives
• To understand the concept of FDI and its various forms.
• To analyze the impact of FDI on the global and national economy.
• To discuss the benefits of FDI for both host and home countries.
• To evaluate the policies that govern FDI in different countries.
• To understand the structure and functions of the global monetary system.
• To explore the role of key international institutions like the International
Monetary Fund (IMF) and World Bank.
• To analyze the evolution of the global monetary system and its current trends.
• To identify challenges such as exchange rate fluctuations, monetary crises,
and global financial imbalances.
Definition of FDI
FDI refers to an investment made by a company or individual in one country into
business interests located in another country. Typically, it involves ownership of at
least 10% of a foreign business and provides the investor with significant influence
over the management of the company.
Types of FDI
• Greenfield Investment: Establishing new operations or facilities in a foreign
country.
• Brownfield Investment: Acquiring or merging with an existing foreign
business.
• Joint Ventures: Forming partnerships with local firms to operate in a foreign
market.
Benefits of FDI
For Host Countries
• Economic Growth: FDI brings in capital, technology, and expertise,
stimulating economic development.
• Job Creation: It leads to employment generation in sectors like
manufacturing, services, and technology.
• Technology Transfer: FDI facilitates the transfer of advanced technology,
helping industries in host countries improve their productivity and innovation.
• Infrastructure Development: Large FDI projects often contribute to better
infrastructure in the host country, such as improved transportation and
communication networks.
For Home Countries
• Increased Revenues: Companies investing abroad gain access to new
markets and consumer bases, resulting in higher revenues.
• Resource Access: FDI allows home countries to tap into foreign resources,
such as raw materials or skilled labor.
• Risk Diversification: By investing in multiple foreign markets, companies
reduce their dependence on domestic markets, spreading business risks.
Challenges and Risks of FDI
• Economic Dependence: Excessive reliance on foreign investors can make a
country vulnerable to external economic shocks or political decisions.
• Regulatory and Political Barriers: Protectionist policies, restrictive
regulations, and political instability can deter foreign investors from entering
certain markets.
• Cultural and Operational Differences: Misalignment between the
management styles, business practices, and regulatory frameworks of home
and host countries can create operational challenges for investors.
• Profit Repatriation: The issue of profit repatriation from host countries to
home countries can sometimes lead to economic tensions, especially in
developing economies.
FDI Policies and Regulations
• Bilateral Investment Treaties (BITs): Agreements between two countries
that promote and protect investments made by investors from either country
in the other.
• FDI Incentives: Many governments offer tax breaks, subsidies, or simplified
regulatory procedures to attract FDI.
Global Monetary System
The Global Monetary System is a framework of institutions, rules, and
conventions that govern international financial exchanges and determine how
currencies are exchanged across the world. It provides a mechanism for
settling international payments, ensuring that goods, services, and investments
can move freely across borders. The system also helps stabilize exchange
rates, provides liquidity, and promotes global economic stability. Over time,
the global monetary system has evolved significantly to adapt to changes in
the international economy, from the Gold Standard to today’s flexible
exchange rate regimes.
1. Exchange Rate Regimes: Countries adopt various systems to manage their
currency values, including fixed, floating, and pegged exchange rates.
2. International Financial Institutions: Institutions like the International
Monetary Fund (IMF) and the World Bank play crucial roles in stabilizing
currencies, providing financial assistance, and facilitating global economic
cooperation.
3. Trade and Capital Flows: The system influences how goods, services, and
capital move between countries, impacting economic growth, investment, and
trade balances.
4. Monetary Policies: Central banks in different countries use monetary
policy tools to control inflation, manage unemployment, and stabilize their
currencies.
Introduction to the Foreign Exchange Market
The foreign exchange (forex or FX) market is a global decentralized
marketplace where currencies are traded. It is the largest and most liquid
financial market in the world, with a daily trading volume exceeding $6
trillion. Key characteristics include:
• Decentralized Structure: Unlike stock markets, the forex market has no
central exchange; it operates through a network of banks, brokers, and
financial institutions.
• 24-Hour Trading: The forex market is open 24 hours a day, five days a week,
allowing for continuous trading across different time zones.
• Currency Pairs: Currencies are traded in pairs (e.g., EUR/USD), where the
value of one currency is quoted against another.
Functions of the Foreign Exchange Market in Detail
1. Currency Conversion: The primary function of the forex market is to
facilitate the conversion of one currency into another. This is essential for
international trade, travel, and investment.
2. Price Discovery: The forex market helps determine the value of currencies
based on supply and demand. The prices reflect economic indicators, market
sentiment, and geopolitical events.
3. Hedging: Businesses and investors use the forex market to hedge against
currency risk. By entering into forex contracts, they can lock in exchange rates
to protect themselves from adverse currency movements.
4. Speculation: Traders engage in speculative activities to profit from
fluctuations in currency values. This involves buying currencies they expect
to rise in value and selling those they expect to fall.
5. Liquidity Provision: The forex market provides liquidity, enabling
participants to enter and exit positions with minimal price impact. This
liquidity is crucial for ensuring that traders can execute transactions quickly
and efficiently.
6. Interest Rate Differentials: Forex trading involves the interest rates set by
central banks. Traders can benefit from interest rate differentials between
currencies through carry trades, where they borrow in a currency with a low
interest rate and invest in one with a higher rate.
7. Facilitating International Trade and Investment: The forex market
supports global commerce by providing the necessary currency exchange for
businesses engaging in cross-border transactions. It also facilitates foreign
direct investment (FDI) by allowing investors to convert their capital into the
local currency of the investment destination.
8. Arbitrage: Traders exploit price discrepancies in different markets through
arbitrage, buying a currency in one market and simultaneously selling it in
another to profit from the price difference.
Conclusion
The seminar concluded by emphasizing the critical role of FDI in driving global
economic growth, especially in developing countries. It also highlighted the
importance of creating favorable policies to attract FDI while mitigating the risks
associated with foreign investment. Participants left with a deeper understanding of
how FDI contributes to both host and home countries and the need for strategic
planning to maximize its benefits.
The foreign exchange market plays a crucial role in the global monetary system by
enabling currency conversion, providing price discovery, and facilitating
international trade and investment. Its various functions contribute to economic
stability and growth by allowing businesses and investors to manage risks associated
with currency fluctuations.
References
• World Bank reports on FDI
• IMF data on global investment flows
• Government of India’s FDI policy documents
