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Mnc and Fdi

In: Business and Management

Submitted By eugwere
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Foreign Direct Investment (FDI) is the process whereby residents of one country (the source/home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country)

The International Monetary Fund (IMF) defines foreign direct investment (FDI) as a category of international investment where a resident in one economy (the direct investor) obtains a lasting interest in an enterprise resident in another economy (the direct investment enterprise). (IMF, 1993) * Two parts of this definition are important to note: 1. The “lasting interest” implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, 2. The “direct investment” implies the acquisition of at least 10 percent of the ordinary shares or voting power of an enterprise abroad. * Foreign Direct Investor - an individual, an incorporated or unincorporated public or private enterprise, a government, a group of related individuals, or a group of related incorporated and/or unincorporated enterprises which has a direct investment enterprise – that is, a subsidiary, associate or branch – operating in a country other than the country or countries of residence of the foreign direct investor(s).
Common Misconceptions of FDI. * FDI does not necessarily imply control of the enterprise since only a 10 percent ownership is required to establish a direct investment relationship. * FDI involves only one investor or a “related group” of investors. * FDI is not based on the nationality or citizenship of the direct investor; it is based on the investor’s residency. * Lending from unrelated parties abroad that are guaranteed by direct investors is not FDI.

The distinguishing feature of FDI...

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