Difference Between Foreign Trade And Foreign Investment

In this article we will try to understand the basic concepts and to distinguish between foreign trade and foreign investment.

What is Foreign Trade-

With globalization, markets all over the world have become interconnected and interlinked, which has further enabled the role of foreign trade to expand. Foreign trade means the exchange of goods and services across international borders. A country does not have all the resources at its disposal, some countries have one or more resources in abundance. A country imports a commodity that they have in scarcity from another country that has it in excess in order to meet their needs.

Types of Foreign Trade-

1. Import Trade :

Basically it is the purchase of goods and services from other countries to your home country.They either import goods they lack from other countries that have them in abundance or they import raw materials to produce the final product themselves.

1. Export Trade :

It means the sale of goods and services from your home country to another country.Countries export those goods which they have in large quantity.

1. Entrepot Trade :

It is a type of trade in which a country purchases goods and services from one country, remodel that and then sell it to another country.

What is Foreign Investment -

RBI defines foreign investments as any investment made by a person/resident outside India in capital instruments of an Indian company or in LLP capital.

Capital instruments here include equity shares, convertible debentures, convertible preference shares, and share warrants.

Types of Foreign Investment -

1. Foreign Direct Investment (FDI) -

When a country invites other countries to to produce and sell directly in their country and they brings capital with them too for the investment, such type of investment is called Foreign Direct Investment.

Foreign companies directly set up their business in India and starts running their business by constructing their plants, they also brings foreign technology which can up boost the home country technology. In all these process they bring capital for he investment too.

1. Foreign Portfolio Investment -

A Foreign Portfolio Investor (FPI) is an overseas company registered in India with the intention of investing in Indian securities that are listed and traded.

They are regulated by the Sebiand the investments are maintained by RBI. Foreign investors play a very important role in the economy to boost it because they are soo much big companies who invest a large amount of money in the indian markets.

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