upsc civil services examination prelims 2019 specialfdi vs fpi fdi fpi. q. consider the following...
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UPSC CIVIL SERVICES EXAMINATION
PRELIMS 2019 SPECIAL
LECTURE 8
MCQs – STATIC – ECONOMY
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FOREIGN INVESTMENT IN INDIA
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FOREIGN DIRECT INVESTMENT
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Foreign direct investment (FDI) is when a foreign company or individual makes an investment in India thatinvolves either :
1
establishing new business operations - known as green-field FDI or1.1
Inward FDI is when foreign companies or individuals invest in India.2
acquiring business assets, including controlling interests, in an already existing Indian company - known as brown-field FDI
1.2
Outward FDI is when Indian companies or individuals invest in foreign countries3
As per the Companies Act 2013, if a foreign investor owns more than 10 % shares in a listed company, it will betreated as FDI
4
FOREIGN PORTFOLIO INVESTMENT
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Arvind Mayaram Committee had recommended the merger of the FII and Qualified Foreign Investors (QFI)regimes under the new “Foreign Portfolio Investors” (FPI) regime.
1
In the Indian context, FIIs (along with sub-accounts with FIIs) and QFIs can be collectively classified as ForeignPortfolio Investment (FPI).
2
FOREIGN PORTFOLIO INVESTMENT
Investment by any single investor or investor group under FPI cannot exceed 10% of the equity of an Indiancompany, beyond which it will now be treated as FDI.
3
FOREIGN INSTITUTIONAL INVESTMENT
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FII is when foreign institutional investors invest in the shares of an Indian company, or in bonds offered by anIndian company.
1
Only institutional investors like Investment companies, Insurance funds etc. were allowed to invest in Indianstock market directly. Hence the term foreign institutional investor. These investors have to get a license fromSEBI.
2
However, if foreign individuals wanted to invest in India’s markets, they had to get themselves registered as asub-account of an FII. The FII used to buy shares/ bonds from the India markets on their behalf.
3
FIIs, have now been merged into Foreign Portfolio Investors (FPI), when the FPI regulations were introduced in2014.
4
QUALIFIED FOREIGN INVESTMENT
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Foreign individuals could not invest directly in India’s markets without sub-accounts with an FII.1
QFI is sub-category of Foreign Portfolio Investor and refers to any foreign individuals, groups or associations, orresident, however, restricted to those from a country that is a member of Financial Action Task Force (FATF) or acountry that is a member of a group which is a member of FATF and a country that is a signatory to InternationalOrganization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (MMOU).
2
QFIs, have now been merged into Foreign Portfolio Investors (FPI), when the FPI regulations were introduced in 2014.
3
BUT NOW IT IS LIKE THIS
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FDI vs FPI
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FDI FPI
Q. Consider the following statements:
1) FDI is considered more stable investment as compared to FII
2) One can obtain control of a company by investing via FPI route in India
Which of the above statements are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 or 2
Answer : a
QUESTION 1
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As per the Companies Act 2013, if a foreign investor owns more than 10 % shares in a listed
company, it will be treated as?
a) Foreign Direct Investment
b) Foreign Portfolio Investment
c) Foreign Institutional Investment
d) Both b and c
Answer : a
QUESTION 2
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Which of the following routes of investment have now been clubbed together under Foreign
Portfolio Investment?
1) FDI
2) FII
3) QFI
4) FVCI
Select the correct code:
a) 1 and 3 only
b) 2 and 3 only
c) 1,2 and 3 only
d) All of the above
Answer : b
QUESTION 3
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Consider the following statements:
1) FDI route always offers higher return than FII route on investment
2) FII is termed as “hot money”.
Which of the above is/are incorrect?
a) 1 Only
b) 2 Only
c) All of the above
d) None of the above
Answer : a
QUESTION 4
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Which of the following committee was constituted by the Government of India to rationalize
the definitions of FDI and FII?
a) S S Tarapore Committee
b) Arvind Mayaram Committee
c) Urjit Patel Committee
d) Saxena Committee
Answer : b
QUESTION 5
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