ABSTRACT
A core driver of the globalization of economies is international investment. While earlier chapters have already noted the flows of assets across borders, investment represents a stock of international assets over which the firm has some degree of control. Thus investment is based on the acquisition of an asset in a non-domestic location which an economic agent holds in expectation of an anticipated return. Central to these actions is the assessment by the agent of the risk attached to the acquisition of such an asset. Convention stresses that investors will seek to strike a trade-off between risks and return within investment holdings. Thus riskier investments require higher returns to mitigate for the extra risk undertaken. This chapter divides international investment into two subcategories:
n Foreign portfolio (or indirect) investment (i.e. investment in non-domestic financial instruments). n Foreign direct investment (i.e. direct investment in the productive capacity of a foreign country).
