IGCSE Development Studies: Specimen Questions with Answers 44 - 45 of 98

Explanation

Foreign investment: It is the flows of capital from one country to another in exchange for significant ownership stakes in domestic company or the assets of the domestic country. In foreign investment the foreigners take an active part in management as a part of their investment. It works both ways especially between countries of equal economic status.

There are four different types of foreign investment:

• Foreign Direct Investment (FDI)
• Foreign Portfolio Investment (FPI)
• Official flows
• Commercial loans

FDI occurs when a business invests in a company which is in another country. For private investment to be considered as FDI, the investing companies no less than 10 % of the shares that belong to the foreign company. The company that invest is known as the parent company on the other hand the foreign company is known as the subsidiary company.

Explanation

Joint ventures: Joint venture reefers to the co-operation of two or more individuals or business in which each agrees to share profit and loss and control in a specific enterprise. It is usually a temporary partnership without the use of a firm name. It limited to the specific purpose for which the persons agree to contribute capital and share losses. The liability of the partners is limited to the venture concerned for which they agree to contribute capital and share profit and losses.

Features of Joint Venture Are

• Agreement between two or more persons.
• Joint venture is made for the specific execution of a project or task. Thus, the going concern concept of accountancy is not applicable to a joint venture.
• Agreement for joint venture is dissolved as soon as the specific project is over.
• The profit and loss of joint venture is computed on completion of the venture.