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

The correct answer is B because it accurately reflects the nature and purpose of these two types of investments.

FDI involves a long term commitment where a foreign entity invests directly in the production or business of a country. This usually targets specific sectors like manufacturing or services to establish a lasting interest and often brings in technology and management expertise.

FII refers to investments made by foreign entities in the financial markets of a country, such as stocks and bonds. These investments increase the overall availability of liquid capital in the economy and are not restricted to specific industrial projects.

The other options are incorrect because FDI, not FII, is associated with management and technology. FDI is generally considered more stable than FII, which is often called hot money due to its volatility. Additionally, FDI typically flows into the primary market through direct setup or expansion, while FII primarily operates in the secondary equity market.