The various potential opportunities for investment in the international marketplace - Essay Example

Center of discussion in this paper is foreign investment as summation of the equity capital which is measured in balance of payments. It may be long-term as well as short-term capital. It also refers to the inflows to acquire management power. Foreign investment is a measure of ownership of different assets such as buildings, factories and mines among others. Apart from these, economic globalization can be said to occur with the increase of foreign investment. Mainly, there are two types of foreign investment i.e. inward foreign investment and outward foreign investment.

Foreign investment creates confidence among the investors into markets even in difficult situations and times. Foreign investment aims at developing attention by a resident entity of an economy (known as ‘direct investor’) in a unit resident of the other economy. The association in between the direct investor and the direct investment should last for a longer phase of time. Direct investment includes the initial transaction and the capital transaction and builds a healthy relationship between them.

It is the type of investment that is made to acquire an effective control over the enterprise. Inward direct investment creates a value for net inflows of foreign direct investment and outward direct investment creates a value for net outflows of foreign direct investment. Inward direct investments are mainly made by non-resident investors and net outflows are made by residents of the enterprise. Foreign direct investment also bears the transfer of new technology in order to improve the management skills.

(United Nations, n.d.). Portfolio Diversification Portfolio diversification is mainly done to reduce the risks that combine a number of investments such as real estate, bonds and stocks among others. To reduce the risk in portfolio is the main purpose of diversification. Diversifications lessen the potentiality and are more concerned about the performance that covers an extensive range of the economic conditions. Portfolio diversification creates a reduction in company-specific risk as with the increase in portfolio of assets or products an organization in its possession holds more than one product, which helps to significantly reduce any risk arriving from adverse condition of a product (Driessen & Laeven, n.d.).

Reasons To Invest Internationally Major reasons to invest in foreign market are the growth and the development of an enterprise. By the proper development of the enterprise, it can emerge in markets very effectively. Certain investment risks are also found in foreign companies and their markets. Foreign investment is determined upon a few of the crucial factors such as economic growth and demand of investment for goods and services. High demand of goods is also beneficial as it can help to capture the market for a longer period of time.

Every enterprise has a motive of earning huge amount of profit so they endeavor to invest internationally. Competition is one of the reasons to invest internationally and broaden the market. For accessing the foreign markets various types of strategies and valuable measures should be taken in order to increase the market size. At times, investing in foreign markets turn out to be complex and for this, the investor should invest through mutual funds in order to participate in the global markets (First