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Finance GlossaryForeign Direct Investment
Foreign Direct Investment
Definition of Foreign Direct Investment
Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
Related Terms
Balance Sheet
A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.
These are some of the key components of a balance sheet:
- Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets
- Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets
- Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities
- Long Term liabilities : Long-term loans, bonds, and others
- Shareholders’ equity : Paid-in capital and retained earnings
European Option
A European Option allows a trader to exercise the contract only on the day of expiry. For example, let’s say an options trader bought a European Call Option that expires on 01-01-2023.
The options trader can only exercise the call option, that is, buy the underlying assets on the day of expiry which is 01-01-2023. In India, traders can only engage in European options.
The options trader can only exercise the call option, that is, buy the underlying assets on the day of expiry which is 01-01-2023. In India, traders can only engage in European options.
Gamma
Gamma is a mathematical formula used to measure the change in the delta of an options contract price.
Delta is the change in the price of an options contract in relation to the underlying asset’s price.
In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2
Delta is the change in the price of an options contract in relation to the underlying asset’s price.
In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2
Hedging
Hedging is a risk management technique where potential loss is offset by securing a safer, more stable trade. For example, buying stock (risky) and offsetting the risk with commodity (stable) is a common hedging practice in the securities market.
In the derivatives market, hedging is followed by merchants and businesses who want to protect against adverse price movements in commodities or currencies. They do so by entering into a futures or options contract.
In the derivatives market, hedging is followed by merchants and businesses who want to protect against adverse price movements in commodities or currencies. They do so by entering into a futures or options contract.
Long-Term Capital Gain Tax
Long-term capital gain tax is the tax imposed on profits from selling shares or financial securities held for a period of at least three years. The tax rate applied is typically lower than the short-term capital gains tax, which are profits from the sale of shares held for a shorter duration.
Abc Wave Theory
Abc Wave Theory or Elliot Wave Theory is used to determine the direction of the stock market by identifying recurring waves or patterns over the long term. The theory is named after Ralph Nelson Elliott.
5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.
5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.
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