sector investments that are made by a company into a foreign country. Foreign
direct investments create a strong demand for a local currency and help boost
the economy. With money coming into a country, strong foreign direct investment
is one way governments can finance current account deficits. However, just as
funds flow in, they also can flow out, creating economic turmoil.
Levels of foreign direct
investment are closely watched to determine how attractive a country
is to investors. If foreign direct investment levels drop, then other investors
may become cautious about investing in that country. As a result, others may
limit their foreign direct investment activities and also limit their purchases
of stock or bonds issued by the country’s corporations.