Question

An ______ is an investment made by a firm or individual in one country into business interests located in another country
1. FDI
2. Forex
3. CRR
4. SEZ

Answer 1

Correct Answer - Option 1 : FDI

The correct answer is FDI.

• Foreign direct investment(FDI):
  • Foreign direct investment(FDI) refers to a situation where a foreign entity obtains ownership or control rights over the shares of a company in a country or establishes a company in that country.
  • Foreign direct investment(FDI) is not only an inflow of capital but also an inflow of technology, knowledge, skills.
  • It is the main source of non-debt financial resources for the economic development of a country.
  • Foreign direct investment tends to take place in economies with growth prospects and skilled labor.

• Foreign Exchange(Forex):
  • ​Foreign exchange reserves are assets held by a country's central bank or monetary authority.
  • It is usually held in a reserve currency (usually the U.S. dollar) and to a lesser extent the Euro, Japanese Yen, and British Pound.
  • It is used to support your liabilities, such as the issued local currency and the deposit reserves of financial institutions or governments at the central bank.
  • Benefits of Foreign Institutional Investors (FII):
    • These investors generally prefer equity over debt. So this will also help maintain and even improve the capital structures of the companies they are investing in.
    • They have a positive effect on the competition in the financial markets
      FII help with the financial innovation of capital markets.
    • These institutions are professionally managed by asset managers and analysts. They generally improve the capital markets of the country.
• Cash Reserve Ratio(CRR):
  • ​The Cash Reserve Ratio (CRR) is a specific part of the total deposits held by commercial banks as reserves and applied by the Reserve Bank of India (RBI).
  • This specific amount is held as a reserve in the form of cash or cash equivalents, stored in the bank vault, or sent to the Reserve Bank of India. CRR ensures that the bank will not run out of money.
• Special Economic Zone(SEZ):
  • ​Special Economic Zone is an enclave of a country region. The region is usually tax-free and has different commercial and commercial laws, mainly to encourage investment and create jobs.
  • In addition to creating jobs and promoting investment, special economic zones have also been created to better manage these areas, thus increasing the convenience of doing business.

• Measures of Expansionary policy and Contractionary Policy:

Tool	Expansionary Policy	Contractionary Policy
Cash Reserve Ratio(CRR)	Decrease	Increase
Repo Rate	Decrease	Increase
Statutory Liquidity Ratio(SLR)	Decrease	Increase
Marginal Standing Facility Rate(MSFR)	Decrease	Increase