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    Question

    Following are the types of foreign direct investment

    EXCEPT      
    A Joint Venture Correct Answer Incorrect Answer
    B Franchising Correct Answer Incorrect Answer
    C Minority Interest Correct Answer Incorrect Answer
    D Subsidiary Correct Answer Incorrect Answer
    E Merger Correct Answer Incorrect Answer

    Solution

    Foreign direct investment (FDI) is an investment in a business by an investor from one country (home country) for which the foreign investor has control over the company purchased in another country (host country). The various forms of FDI could be: ·         Greenfield investment – setting up a new company in another country ·         Subsidiary /branches – setting up a new company as a subsidiary or branch of a foreign parent company ·         Merger or Acquisition – acquiring a controlling stake in or taking over an existing company in another country ·         Joint Venture – setting up a company in the host country with the collaboration of local partners ·         Minority stake – taking a minority stake in a company in another country ·         Franchising is not a form of FDI . In a franchising arrangement, the franchisor usually does not make any contribution to the business in terms of equity. The franchisor’s contribution is in terms of grant of rights for the use of their intellectual property and business method. The equity is contributed by the Indian franchisee and the economic interest of the franchisor is limited to the franchise fees that he receives from the franchisee. Furthermore, franchising primarily involves the sale of goods and services in India, through Indian franchisees. As such, franchising is not a form of FDI.

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