What is the general nature of foreign portfolio investment (FPI)?

Foreign portfolio investment (FPI) refers to the investment in financial assets, such as stocks and bonds, located in another country, rather than direct investments in physical businesses or establishments. The nature of FPI is characterized by its diversification across a range of foreign assets, which allows investors to spread their risk and potentially enhance their returns. This strategy does not typically involve the active management of or direct ownership in the companies in which they invest, unlike direct foreign investments that may involve establishing or acquiring subsidiaries.

Investors in FPI are often seeking to benefit from the growth of foreign markets without the need for extensive operational involvement in those markets. The emphasis on a diversified portfolio aligns with the FPI goal of maximizing investment returns while managing risk through exposure to various assets across different regions.

The incorrect options highlight misunderstandings about the scope of foreign portfolio investments. For instance, the notion that FPI involves operations abroad only misrepresents the fundamental characteristic of FPI, which does not require operational control. The assertion that FPI includes only direct investments in subsidiaries contradicts the very definition of portfolio investment; direct investments are categorized as foreign direct investment (FDI). Lastly, the focus on investments in local markets misunderstands the essence of foreign portfolio investment, as FPI