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The purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return, which does not result in foreign management, ownership, or legal control.
Some examples of portfolio investment are:
- purchase of shares in a foreign company.
- purchase of bonds issued by a foreign government.
- acquisition of assets in a foreign country.
- purchase of stocks in a foreign company.
Factors affecting international portfolio investment:
- tax rates on interest or dividends (investors will normally prefer countries where the tax rates are relatively low)
- interest rates (money tends to flow to countries with high interest rates)
- exchange rates (foreign investors may be attracted if the local currency is expected to strengthen)
Portfolio investment is part of the capital account on the balance of payments statistics.
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