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Q. 7

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Economics Today
Found in: Page 413

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Short Answer

During the past year, several large banks extended 200million in loans to the government and several firms in a developing nation. International investors also purchased 150 million in bonds and 350 million in stocks issued by domestic firms. Of the stocks that foreign investors purchased, 100million were shares that amounted to less than a 10 percent interest in domestic firms. This was the first year this nation had ever permitted inflows of funds from abroad.

a. Based on the investment category definitions discussed in this chapter, what was the amount of portfolio investment in this nation during the past year?

b. What was the amount of foreign direct investment in this nation during the past year?

(a) The amount of portfolio investment in this nation during the past year is 250 million.

(b) The amount of foreign direct investment in this nation during the past year is 150 million.

See the step by step solution

Step by Step Solution

Step1: Given Information (part a, b)

The given information to find the amount of portfolio and foreign direct investment in this nation is as follows:

Portfolio Investments purchased less than 10% of shares.

Direct foreign investment purchases more than 10% of owner's share.

Step2: Find the amount of portfolio investment (part a). 

The term "portfolio investment" refers to the purchase of less than 10% of a company's stock.

As a result, this country's portfolio investment for the last year totaled 250 million.

150 million dollars in bonds and 100 million dollars in stock.

step3: Find the amount of foreign direct investment (part b).

Foreign direct investment is defined as the purchase of more than 10% of a company's stock. As a result, foreign direct investment in bonds totals 150 million.

Bank loans are not considered portfolio or foreign direct investment.

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