Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which of the following statements best represents an important difference between the two?

1. FII helps bring better management skills and technology, while FDI only brings in capital.
2. FII helps in increasing capital availability in general, while FDI only targets specific sectors.
3. FDI flows only into the secondary market, while FII targets the primary market.
4. FII is considered to be more stable than FDI.

Explanation

Option (b) is correct

• FII helps in increasing capital availability in general, while FDI only targets specific sectors. FII refers to investments made by foreign institutional investors into the stock markets and debt instruments of a country, thereby enhancing the overall availability of capital across the economy without focusing on any particular sector.
• On the other hand, FDI is directed towards specific sectors where foreign investors bring capital along with ownership, management, and sometimes technology, into industries like manufacturing, infrastructure, and services. Unlike FDI, which is sector-specific and long-term, FII is more general and mostly involves financial assets.

Answer: (b) FII helps in increasing capital availability in general, while FDI only targets specific sectors | Difficulty Level: Easy