Economics · External Sector
Which of the following best captures a core structural distinction between Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), and why is this distinction critical in the context of India's external sector stability?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1FDI involves speculative investments in stock markets, while FPI creates long-term industrial infrastructure.
- 2FPI includes direct management control of firms, while FDI is restricted to passive holdings.
- 3FDI implies long-term ownership and management interest in an enterprise, while FPI comprises liquid, short-term capital flows without control, making the latter more volatile.✓
- 4FDI and FPI are both governed solely by SEBI and hence have no macroeconomic difference.
Correct answer
FDI implies long-term ownership and management interest in an enterprise, while FPI comprises liquid, short-term capital flows without control, making the latter more volatile.
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