detail of fdi
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Foreign direct investmentFrom Wikipedia, the free encyclopedia
Foreign direct investment (FDI) or foreign investment refers to the net inflows ofinvestmentto acquire a
lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy
other than that of the investor.[1]It is the sum of equity capital, reinvestment of earnings, other long-term capital,
and short-term capital as shown in thebalance of payments. It usually involves participation
inmanagement,joint-venture,transfer of technologyandexpertise. There are two types of FDI: inward foreign
directinvestmentand outward foreign direct investment, resulting in a netFDI inflow(positive or negative) and
"stock of foreign direct investment", which is the cumulative number for a given period. Direct investment
excludesinvestment through purchase of shares.[2]FDI is one example ofinternational factor movements.
Contents
[hide]
1 History
2 Types
3 Methods
4 Global Foreign Direct Investment
5 Foreign direct investment in the United States
6 Foreign direct investment in China
7 Foreign direct investment in India
8 Foreign direct investment and the developing world
9 See also
10 References
11 External links
[edit]History
FDI is a measure offoreign ownershipof productive assets, such as factories, mines and land. Increasing
foreign investment can be used as one measure of growing economic globalization. The figure below shows
net inflows of foreign direct investment in theUnited States. The largest flows of foreign investment occur
between the industrialized countries (North America,Western EuropeandJapan). But flows to non-
industrialized countries are increasing sharply.
US International Direct Investment Flows:[3]
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erenceshttp://en.wikipedia.org/wiki/Foreign_direct_investment#See_alsohttp://en.wikipedia.org/wiki/Foreign_direct_investment#Foreign_direct_investment_and_the_developing_worldhttp://en.wikipedia.org/wiki/Foreign_direct_investment#Foreign_direct_investment_in_Indiahttp://en.wikipedia.org/wiki/Foreign_direct_investment#Foreign_direct_investment_in_Chinahttp://en.wikipedia.org/wiki/Foreign_direct_investment#Foreign_direct_investment_in_the_United_Stateshttp://en.wikipedia.org/wiki/Foreign_direct_investment#Global_Foreign_Direct_Investmenthttp://en.wikipedia.org/wiki/Foreign_direct_investment#Methodshttp://en.wikipedia.org/wiki/Foreign_direct_investment#Typeshttp://en.wikipedia.org/wiki/Foreign_direct_investment#Historyhttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/International_factor_movementshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-1http://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Expertisehttp://en.wikipedia.org/wiki/Transfer_of_technologyhttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_note-0http://en.wikipedia.org/wiki/Investment 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Period FDI Inflow FDI Outflow Net Inflow
1960-69 $ 42.18 bn $ 5.13 bn + $ 37.04 bn
1970-79 $ 122.72 bn $ 40.79 bn + $ 81.93 bn
1980-89 $ 206.27 bn $ 329.23 bn - $ 122.96 bn
1990-99 $ 950.47 bn $ 907.34 bn + $ 43.13 bn
2000-07 $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn
Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn
[edit]Types
A foreign direct investor may be classified in any sector of the economy and could be any one of the
following:[citation needed]
an individual;
a group of related individuals;
an incorporated orunincorporated entity;
apublic companyorprivate company;
a group of related enterprises;
a government body;
anestate (law),trustor other social institution; or
any combination of the above.
[edit]Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the
following methods:
by incorporating a wholly ownedsubsidiaryorcompany
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by acquiring shares in an associated enterprise
through amergeror anacquisitionof an unrelated enterprise
participating in an equityjoint venturewith another investor or enterprise
Foreign direct investment incentives may take the following forms:[citation needed]
lowcorporate taxandincome taxrates
tax holidays
other types of tax concessions
preferentialtariffs
special economic zones
EPZ- Export Processing Zones
Bonded Warehouses
Maquiladoras
investment financial subsidies
soft loanor loanguarantees
free land or land subsidies
relocation & expatriation subsidies
job training & employment subsidies
infrastructuresubsidies
R&D support
derogation from regulations (usually for very large projects)
[edit]Global Foreign Direct Investment
UNCTADsaid that there was no significant growth of Global FDI in 2010. In 2010 was $1,122 billion and in
2009 was $1.114 billion. The figures was 25 percent below the pre-crisis average between 2005 to 2007.[4]
[edit]Foreign direct investment in the United States
This section does notciteanyreferences or sources. Please help improve this section by adding
citations toreliable sources. Unsourced material may bechallengedandremoved.(June 2011)
The United States is the worlds largest recipient of FDI. More than $325.3 billion in FDI flowed into the United
States in 2008, which is a 37 percent increase from 2007. The $2.1 trillion stock of FDI in the United States at
the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic product (GDP).55
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Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been
created by foreign companies, resulting in close to $314 billion in investment.[citation needed] Unarguably, US
affiliates of foreign companies have a history of paying higher wages than US corporations.[citation needed] Foreign
companies have in the past supported an annual US payroll of $364 billion with an average annual
compensation of $68,000 per employee.[citation needed]
Increased US exports through the use of multinational distribution networks. FDI has resulted in 30% of jobs for
Americans in the manufacturing sector, which accounts for 12% of all manufacturing jobs in the US.
Affiliates offoreign corporationsspent more than $34 billion onresearch and developmentin 2006 and
continue to support many national projects. Inward FDI has led to higher productivity through increased capital,
which in turn has led to highliving standards.[5][dead link]
[edit]Foreign direct investment in China
Starting from abaselineof less than $19 billion just 20 years ago, FDI in China has grown to over $300 billion
in the first 10 years. China has continued its massive growth and is the leader among all developing nations in
terms of FDI.[citation needed] Even though there was a slight dip in FDI in 2009 as a result of the global slowdown,
2010 has again seen investments increase.[citation needed]
[edit]Foreign direct investment in India
Starting from abaselineof less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the
second most important FDI destination (after China) for transnational corporations during 2010-2012. As per
the data, the sectors which attracted higher inflows were services, telecommunication, construction activities
and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading
sources of FDI. FDI for 2009-10 at USD 25.88 billion was lower by five per cent from USD 27.33 billion in the
previous fiscal. Foreign direct investment in August dipped by about 60 per cent to aprox. USD 34 billion, the
lowest in 2010 fiscal, industry department data released showed.[6]In the first two months of 2010-11 fiscal,FDI
inflow into India was at an all-time high of $ 7.78 billions up 77% from $ 4.4 billions during the corresponding
period in the previous year.
[edit]Foreign direct investment and the developing world
FDI provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills,
technology, and job opportunities.[citation needed] Many of theFour Asian Tigersbenefited from investment
abroad.[citation needed] A recentmeta-analysisof the effects of foreign direct investment on local firms in developing
and transition countries suggest that foreign investment robustly increases local productivity
growth.[7]TheCommitment to Development Indexranks the "development-friendliness" of rich country
investment policies.
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[edit]See also
Foreign Affiliate Trade Statistics
Foreign portfolio investment
List of countries by received FDI
List of countries by FDI abroad
International factor movements
[edit]References
1. ^Data.worldbank.org
2. ^CIA.gov
3. ^BEA.gov
4. ^UN body says global foreign direct investment inflows remain stagnant in 2010,business.globaltimes.cn
5. ^Benefits of FDIThe International Trade Administration. Retrieved on 2010-03-10[dead link]
6. ^FDI inflows plunge by about 60% in AugustEconomic Times (India Times) 2010-10-22
7. ^Which Foreigners are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDIWilliam Davidson
Institute Working Paper 996.
[edit]External links
Latest news on Europe Foreign Direct Investment decisions
UNCTAD - Division on Investment and Enterprise
UNCTAD - FDI Statistics
Investment Map : database provided by the UN/WTO agency "International Trade Centre" (ITC)
Foreign Direct Investment Facts and MythsRetrieved on 2010-03-10
NOTES:
1.Foreign ownership refers to the complete or majority
ownership/control of abusinessorresourcein acountryby individualswho are not citizens of that country, or bycompanieswhoseheadquarters are not in that country.
2. A holding company is acompanyorfirmthat owns other companies'outstanding stock. It usually
refers to a company which does not produce goods or services itself; rather, its purpose is to own shares
http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=9http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=9http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=9http://en.wikipedia.org/wiki/Foreign_Affiliate_Trade_Statisticshttp://en.wikipedia.org/wiki/Foreign_Affiliate_Trade_Statisticshttp://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/List_of_countries_by_received_FDIhttp://en.wikipedia.org/wiki/List_of_countries_by_received_FDIhttp://en.wikipedia.org/wiki/List_of_countries_by_FDI_abroadhttp://en.wikipedia.org/wiki/List_of_countries_by_FDI_abroadhttp://en.wikipedia.org/wiki/International_factor_movementshttp://en.wikipedia.org/wiki/International_factor_movementshttp://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=10http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=10http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=10http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-0http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WDhttp://data.worldbank.org/indicator/BX.KLT.DINV.CD.WDhttp://data.worldbank.org/indicator/BX.KLT.DINV.CD.WDhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-1https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Iran&countryCode=ir®ionCode=me#2198https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Iran&countryCode=ir®ionCode=me#2198https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Iran&countryCode=ir®ionCode=me#2198http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-2http://www.bea.gov/international/xls/table1.xlshttp://www.bea.gov/international/xls/table1.xlshttp://www.bea.gov/international/xls/table1.xlshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-3http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-3http://business.globaltimes.cn/world/2011-01/613560.htmlhttp://business.globaltimes.cn/world/2011-01/613560.htmlhttp://business.globaltimes.cn/world/2011-01/613560.htmlhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-4http://mi.o2.ie/www.investamerica.gov/home/iia_main_001154.asphttp://mi.o2.ie/www.investamerica.gov/home/iia_main_001154.asphttp://mi.o2.ie/www.investamerica.gov/home/iia_main_001154.asphttp://en.wikipedia.org/wiki/Wikipedia:Link_rothttp://en.wikipedia.org/wiki/Wikipedia:Link_rothttp://en.wikipedia.org/wiki/Wikipedia:Link_rothttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-5http://economictimes.indiatimes.com/news/economy/finance/FDI-inflows-plunge-by-about-60-in-August/articleshow/6793310.cmshttp://economictimes.indiatimes.com/news/economy/finance/FDI-inflows-plunge-by-about-60-in-August/articleshow/6793310.cmshttp://economictimes.indiatimes.com/news/economy/finance/FDI-inflows-plunge-by-about-60-in-August/articleshow/6793310.cmshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-6http://ideas.repec.org/p/wdi/papers/2010-996.htmlhttp://ideas.repec.org/p/wdi/papers/2010-996.htmlhttp://ideas.repec.org/p/wdi/papers/2010-996.htmlhttp://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=11http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=11http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=11http://www.europefdi.org/http://www.europefdi.org/http://www.unctad.org/Templates/StartPage.asp?intItemID=2983&lang=1http://www.unctad.org/Templates/StartPage.asp?intItemID=2983&lang=1http://www.unctad.org/Templates/Page.asp?intItemID=1923&lang=1http://www.unctad.org/Templates/Page.asp?intItemID=1923&lang=1http://www.investmentmap.org/http://www.investmentmap.org/http://www.directforeigninvestment.net/http://www.directforeigninvestment.net/http://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Outstanding_stockhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Natural_resourcehttp://en.wikipedia.org/wiki/Businesshttp://www.directforeigninvestment.net/http://www.investmentmap.org/http://www.unctad.org/Templates/Page.asp?intItemID=1923&lang=1http://www.unctad.org/Templates/StartPage.asp?intItemID=2983&lang=1http://www.europefdi.org/http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=11http://ideas.repec.org/p/wdi/papers/2010-996.htmlhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-6http://economictimes.indiatimes.com/news/economy/finance/FDI-inflows-plunge-by-about-60-in-August/articleshow/6793310.cmshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-5http://en.wikipedia.org/wiki/Wikipedia:Link_rothttp://mi.o2.ie/www.investamerica.gov/home/iia_main_001154.asphttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-4http://business.globaltimes.cn/world/2011-01/613560.htmlhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-3http://www.bea.gov/international/xls/table1.xlshttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-2https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html?countryName=Iran&countryCode=ir®ionCode=me#2198http://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-1http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WDhttp://en.wikipedia.org/wiki/Foreign_direct_investment#cite_ref-0http://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=10http://en.wikipedia.org/wiki/International_factor_movementshttp://en.wikipedia.org/wiki/List_of_countries_by_FDI_abroadhttp://en.wikipedia.org/wiki/List_of_countries_by_received_FDIhttp://en.wikipedia.org/wiki/Foreign_portfolio_investmenthttp://en.wikipedia.org/wiki/Foreign_Affiliate_Trade_Statisticshttp://en.wikipedia.org/w/index.php?title=Foreign_direct_investment&action=edit§ion=9 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of other companies. Holding companies allow the reduction ofriskfor the owners and can allow the
ownership and control of a number of different companies. In the U.S., 80% or more of stock, in voting
and value, must be owned beforetaxconsolidation benefits such as tax-freedividendscan be claimed.[1]
Sometimes a company intended to be a pure holding company identifies itself as such by adding
"Holdings" or "(Holdings)" to its name, as inSears Holdings.
3. subsidiary, inbusinessmatters, is an entity that is controlled by aseparate higher entity.[citation needed] The controlled entity is calledacompany,corporation, orlimited liability company; and in some casescan be a government orstate-owned enterprise, and the controllingentity is called its parent (or theparent company).
An operating subsidiary is a business term frequently used within the
United Statesrailroadindustry. In the case of a railroad, it refers to acompany that is a subsidiary but operates with its own identity,locomotives androlling stock. In contrast, a non-operatingsubsidiary would exist on paper only (i.e. stocks, bonds, articles ofincorporation) and would use the identity and rolling stock of theparentcompany.
Subsidiaries are a common feature of business life, and most if not allmajor businesses organize their operations in this way. [citationneeded] Examples includeholding companiessuch asBerkshireHathawayas in this listing of its subsidiaries,Time Warner, orCitigroup;as well as more focused companies such asIBM, orXerox Corporation.These, and others, organize their businesses into national or functionalsubsidiaries, sometimes with multiple levels of subsidiaries.
http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Holding_company#cite_note-0http://en.wikipedia.org/wiki/Holding_company#cite_note-0http://en.wikipedia.org/wiki/Holding_company#cite_note-0http://en.wikipedia.org/wiki/Sears_Holdingshttp://en.wikipedia.org/wiki/Sears_Holdingshttp://en.wikipedia.org/wiki/Sears_Holdingshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Railroadhttp://en.wikipedia.org/wiki/Railroadhttp://en.wikipedia.org/wiki/Railroadhttp://en.wikipedia.org/wiki/Rolling_stockhttp://en.wikipedia.org/wiki/Rolling_stockhttp://en.wikipedia.org/wiki/Rolling_stockhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://www.berkshirehathaway.com/subs/sublinks.htmlhttp://www.berkshirehathaway.com/subs/sublinks.htmlhttp://www.berkshirehathaway.com/subs/sublinks.htmlhttp://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/IBMhttp://en.wikipedia.org/wiki/IBMhttp://en.wikipedia.org/wiki/IBMhttp://en.wikipedia.org/wiki/Xerox_Corporationhttp://en.wikipedia.org/wiki/Xerox_Corporationhttp://en.wikipedia.org/wiki/Xerox_Corporationhttp://en.wikipedia.org/wiki/Xerox_Corporationhttp://en.wikipedia.org/wiki/IBMhttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Time_Warnerhttp://www.berkshirehathaway.com/subs/sublinks.htmlhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Rolling_stockhttp://en.wikipedia.org/wiki/Railroadhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/State-owned_enterprisehttp://en.wikipedia.org/wiki/Limited_liability_companyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Sears_Holdingshttp://en.wikipedia.org/wiki/Holding_company#cite_note-0http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Risk -
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Contents
[hide]
1 Details
2 Control
3 Business models which feature elements similar to subsidiaries
4 See also
5 References
[edit]Details
A parent company does not have to be the larger or "more powerful"entity; it is possible for the parent company to be smaller than a
subsidiary,
[citation needed]
or the parent may be larger than some or all of itssubsidiaries (if it has more than one).[citation needed] The parent and thesubsidiary do not necessarily have to operate in the same locations, oroperate the same businesses, but it is also possible that they couldconceivably be competitors in the marketplace. Also, because a parentcompany and a subsidiary are separate entities, it is entirely possible forone of them to be involved in legal proceedings, bankruptcy, taxdelinquency, indictment and/or under investigation, while the other is not.
The most common way that control of a subsidiary is achieved, isthrough the ownership ofsharesin the subsidiary by the parent. Theseshares give the parent the necessary votes to determine the compositionof the board of the subsidiary, and so exercise control. This gives rise tothe common presumption that 50% plus one share is enough to create asubsidiary. There are, however, other ways that control can come about,and the exact rules both as to what control is needed, and how it isachieved, can be complex (see below). A subsidiary may itself havesubsidiaries, and these, in turn, may have subsidiaries of their own. A
parent and all its subsidiaries together are called a "group", although thisterm can also apply to cooperating companies and their subsidiaries withvarying degrees of shared ownership.
Subsidiaries are separate, distinctlegalentities for the purposesoftaxationandregulation. For this reason, they differ fromdivisions,
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which are businesses fully integrated within the main company, and notlegally or otherwise distinct from it.[1]
[edit]Control
The word "control" used in the definition of "subsidiary" is generally takento include both practical and theoretical control. Thus, reference to abody which "controls the composition" of another body's board is areference to control in principle, while reference to being able to castmore than half of the votes at a general meeting, whether legallyenforceable or not, refers to theoretical power. The fact that a companyhas a holding of less than 50% plus one share which, because theholdings of others are widely dispersed, gives effective control is notenough to give that company 'control' for the purpose of determiningwhether it is a subsidiary.[citation needed]
InAustralia, for instance, theaccountingstandards defined thecircumstances in which one entity controls another.[citation needed] In doingso, they largely abandoned the legal control concepts in favour of adefinition that provides that 'control' is "the capacity of an entity todominate decision-making, directly or indirectly, in relation to thefinancial and operating policies of another entity so as to enable thatother entity to operate with it in pursuing the objectives of the controlling
entity." This definition was adapted in the AustralianCorporations Act2001: s 50AA.[2]
Balance of paymentsFrom Wikipedia, the free encyclopedia
Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a
country and the rest of the world.[1]These transactions include payments for the
country'sexportsandimportsofgoods,services, andfinancial capital, as well asfinancial transfers. The BOP
accounts summarize international transactions for a specific period, usually a year, and are prepared in a single
currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as
exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such
as for imports or to invest in foreign countries, are recorded as negative or deficit items.
When all components of the BOP accounts are included they must sum to zero with no overall surplus or
deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the
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shortfall will have to be counter-balanced in other ways such as by funds earned from its foreign investments,
by running down central bank reserves or by receiving loans from other countries.
While the overall BOP accounts will always balance when all types of payments are included, imbalances are
possible on individual elements of the BOP, such as thecurrent account, thecapital accountexcluding the
central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus
countries accumulating wealth, while deficit nations become increasingly indebted. The term balance of
payments often refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the
balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds
sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by
that amount. There is said to be a balance of payments deficit (the balance of payments is said to be negative)
if the former are less than the latter.
Under afixed exchange ratesystem, the central bank accommodates those flows by buying up any net inflow
of funds into the country or by providing foreign currency funds to theforeign exchange marketto match any
international outflow of funds, thus preventing the funds flows from affecting theexchange ratebetween the
country's currency and other currencies. Then the net change per year in the central bank's foreign exchange
reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate
system include amanaged floatwhere some changes of exchange rates are allowed, or at the other extreme a
purelyfloating exchange rate(also known as a purely flexibleexchange rate). With a pure float the central bank
does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, and the
central bank's foreign exchange reserves do not change.
Historically there have been different approaches to the question of how or even whether to eliminate current
account or trade imbalances. With record trade imbalances held up as one of the contributing factors to
thefinancial crisis of 20072010, plans to address global imbalances have been high on the agenda of policy
makers since 2009.
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Contents
[hide]
1 Composition of the balance of payments sheet
o 1.1 Basic analysis
o 1.2 Variations in the use of term "balance of payments"
o 1.3 The IMF definition
2 Imbalances
o 2.1 Causes of BOP imbalances
o 2.2 Reserve asset
o 2.3 Balance of payments crisis
3 Balancing mechanisms
o 3.1 Rebalancing by changing the exchange rate
o 3.2 Rebalancing by adjusting internal prices and demand
o 3.3 Rules based rebalancing mechanisms
4 History of balance of payments issues
o 4.1 Pre-1820: Mercantilism
o 4.2 18201914: Free trade
o 4.3 19141945: Deglobalisation
o 4.4 19451971: Bretton Woods
o 4.5 19712009: Transition, Washington Consensus, Bretton Woods II
o 4.6 2009 and later: Post Washington Consensus
4.6.1 Competitive devaluation after 2009
5 See also
6 Notes and citations
7 Further reading
8 External links
o 8.1 Data
o 8.2 Analysis
[edit]Composition of the balance of payments sheet
[edit]Basic analysis
The two principal parts of the BOP accounts are thecurrent accountand thecapital account.
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The current accountshows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It
is the sum of thebalance of trade(net earnings on exports minus payments for imports),factor
income(earnings on foreign investments minus payments made to foreign investors) andcash transfers. It is
called the currentaccount as it covers transactions in the "here and now" - those that don't give rise to future
claims.[2]
The capital accountrecords the net change in ownership of foreign assets. It includes thereserve account(the
foreign exchange market operations of a nation'scentral bank), along with loans and investments between the
country and the rest of world (but not the future regular repayments/dividends that the loans and investments
yield; those are earnings and will be recorded in the current account). The term "capital account" is also used in
the narrower sense that excludes central bank foreign exchange market operations: Sometimes the reserve
account is classified as "below the line" and so not reported as part of the capital account.[3]
Expressed with the broader meaning for the capital account, the BOPidentityassumes that any current
account surplus will be balanced by a capital account deficit of equal size - or alternatively a current account
deficit will be balanced by a corresponding capital account surplus:
The balancing item, which may be positive or negative, is simply an amount that accounts for any
statistical errors and assures that the current and capital accounts sum to zero. By the principles ofdouble
entry accounting, an entry in the current account gives rise to an entry in the capital account, and in
aggregate the two accounts automatically balance. A balance isn't always reflected in reported figures for
the current and capital accounts, which might, for example, report a surplus for both accounts, but when
this happens it always means something has been missedmost commonly, the operations of the
country's central bankand what has been missed is recorded in the statistical discrepancy term (the
balancing item).[3]
An actual balance sheet will typically have numerous sub headings under the principal divisions. For
example, entries underCurrent account might include:
Trade buying and selling of goods and services
Exports a credit entry
Imports a debit entry
Trade balance the sum of Exports and Imports
Factor income repayments and dividends from loans and investments
Factor earnings a credit entry
Factor payments a debit entry
Factor income balance the sum of earnings and payments.
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Especially in older balance sheets, a common division was between visible and invisible entries. Visible
trade recorded imports and exports of physical goods (entries for trade in physical goods excluding
services is now often called the merchandise balance). Invisible trade would record international buying
and selling of services, and sometimes would be grouped with transfer and factor income as invisible
earnings.[1]
The term "balance of payments surplus" (or deficit a deficit is simply a negative surplus) refers to the
sum of the surpluses in the current account and the narrowly defined capital account (excluding changes
in central bank reserves). Denoting the balance of payments surplus as BOP surplus, the relevant identity
is
[edit]Variations in the use of term "balance of payments"
Economics writerJ. Orlin Grabbewarns the term balance of payments can be a source ofmisunderstanding due to divergent expectations about what the term denotes. Grabbe says the term
is sometimes misused by people who aren't aware of the accepted meaning, not only in general
conversation but in financial publications and the economic literature.[3]
A common source of confusion arises from whether or not the reserve accountentry is included in the
BOP accounts. The reserve account records the activity of the nation's central bank. If it is excluded,
the BOP can be in surplus (which implies the central bank is building up foreign exchange reserves)
or in deficit (which implies the central bank is running down its reserves or borrowing from abroad).[1][3]
The term "balance of payments" is sometimes misused by non-economists to mean just relatively
narrow parts of the BOP such as thetrade deficit,[3]which means excluding parts of the current
account and the entire capital account.
Another cause of confusion is the different naming conventions in use.[4]Before 1973 there was no
standard way to break down the BOP sheet, with the separation into invisible and visible payments
sometimes being the principal divisions. The IMF have their own standards for BOP accounting which
is equivalent to the standard definition but uses different nomenclature, in particular with respect to the
meaning given to the term capital account.
[edit]The IMF definition
TheIMFuse a particular set of definitions for the BOP accounts, which is also used by theOECD,
and theUnited Nations'SNA.[5]
The main difference in the IMF's terminology is that it uses the term financial account to capture
transactions that would under alternative definitions be recorded in the capital account. The IMF uses
the term capital accountto designate a subset of transactions that, according to other usage, form a
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small part of the overall capital account.[6]The IMF separates these transactions out to form an
additional top level division of the BOP accounts. Expressed with the IMF definition, the BOP identity
can be written:
The IMF uses the term current accountwith the same meaning as that used by other
organizations, although it has its own names for its three leading sub-divisions, which are:
The goods and services account(the overall trade balance)
Theprimary income account(factor income such as from loans and investments)
The secondary income account(transfer payments)
[edit]Imbalances
While the BOP has to balance overall, surpluses or deficits on its individual elements can lead toimbalances between countries. In general there is concern over deficits in the current
account.[7]Countries with deficits in their current accounts will build up increasing debt and/or see
increased foreign ownership of their assets. The types of deficits that typically raise concern
are[1]:
A visible trade deficitwhere a nation is importing more physical goods than it exports (even if
this is balanced by the other components of the current account.)
An overall current account deficit.
A basic deficitwhich is the current account plus foreign direct investment (but excluding
other elements of the capital account like short terms loans and the reserve account.)
As discussed in the history section below, the Washington Consensus period saw a swing of
opinion towards the view that there is no need to worry about imbalances. Opinion swung back in
the opposite direction in the wake offinancial crisis of 20072009. Mainstream opinion expressed
by the leading financial press and economists, international bodies like the IMFas well as
leaders of surplus and deficit countrieshas returned to the view that large current account
imbalances do matter.[8]Some economists do, however, remain relatively unconcerned about
imbalances[9]and there have been assertions, such as by Michael P. Dooley, David Folkerts-
Landau and Peter Garber , that nations need to avoid temptation to switch to protectionism as a
means to correct imbalances.[10]
[edit]Causes of BOP imbalances
There are conflicting views as to the primary cause of BOP imbalances, with much attention on
the US which currently has by far the biggest deficit. The conventional view is that current
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account factors are the primary cause [11]- these include the exchange rate, the government's
fiscal deficit, business competitiveness, and private behaviour such as the willingness of
consumers to go into debt to finance extra consumption.[12]An alternative view, argued at length
in a 2005 paper byBen Bernanke, is that the primary driver is the capital account, where aglobal
savings glutcaused by savers in surplus countries, runs ahead of the available investment
opportunities, and is pushed into the US resulting in excess consumption and asset price
inflation.[13]
[edit]Reserve asset
Main article:Reserve currency
The US dollar has been the leading reserve asset since the end of the gold standard.
In the context of BOP and international monetary systems, the reserve asset is the currency or
other store of value that is primarily used by nations for their foreign reserves.[14]
BOP imbalances
tend to manifest as hoards of the reserve asset being amassed by surplus countries, with deficit
countries building debts denominated in the reserve asset or at least depleting their supply.
Under a gold standard, the reserve asset for all members of the standard is gold. In the Bretton
Woods system , either gold or theUS Dollarcould serve as the reserve asset, though its smooth
operation depended on countries apart from the US choosing to keep most of their holdings in
dollars.
Following the ending of Bretton Woods, there has been node jurereserve asset, but the US
dollar has remained by far the principalde factoreserve. Global reserves rose sharply in the firstdecade of the 21st century, partly as a result of the1997 Asian Financial Crisis, where several
nations ran out of foreign currency needed for essential imports and thus had to accept deals on
unfavourable terms. TheIMFestimates that between 2000 to mid-2009, official reserves rose
from $1,900bn to $6,800bn.[15]Global reserves had peaked at about $7,500bn in mid 2008, then
declined by about $430bn as countries without their own reserve currency used them to shield
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themselves from the worst effects of thefinancial crisis. From Feb 2009 global reserves began
increasing again to reach close to $9,200bn by the end of 2010.[16][17]
As of 2009 approximately 65% of the world's $6,800bn total is held in US dollars and
approximately 25% inEuros. TheUK Pound,Japanese yen, IMFSDRs, and precious
metals[18]also play a role. In 2009Zhou Xiaochuan, governor of thePeople's Bank of China,
proposed a gradual move towards increased use of SDRs, and also for the national currencies
backing SDRs to be expanded to include the currencies of all major economies.[19][20]Dr Zhou's
proposal has been described as one of the most significant ideas expressed in 2009.[21]
While the current central role of the dollar does give the US some advantages such as lower cost
of borrowings, it also contributes to the pressure causing the US to run a current account deficit,
due to theTriffin dilemma. In a November 2009 article published inForeign Affairsmagazine,
economistC. Fred Bergstenargued that Dr Zhou's suggestion or a similar change to the
international monetary system would be in the United States' best interests as well as the rest of
the world's.[22]Since 2009 there has been a notable increase in the number of new bilateral
agreements which enable international trades to be transacted using a currency that isn't a
traditional reserve asset, such as the renminbi, as theSettlement currency.[23]
[edit]Balance of payments crisis
Main article:Currency crisis
A BOP crisis, also called a currency crisis, occurs when a nation is unable to pay for essential
imports and/or service its debt repayments. Typically, this is accompanied by a rapid decline in
the value of the affected nation's currency. Crises are generally preceded by large capital inflows,
which are associated at first with rapid economic growth.[24]However a point is reached where
overseas investors become concerned about the level of debt their inbound capital is generating,
and decide to pull out their funds.[25]The resulting outbound capital flows are associated with a
rapid drop in the value of the affected nation's currency. This causes issues for firms of the
affected nation who have received the inbound investments and loans, as the revenue of those
firms is typically mostly derived domestically but their debts are often denominated in a reserve
currency. Once the nation's government has exhausted its foreign reserves trying to support the
value of the domestic currency, its policy options are very limited. It can raise its interest rates to
try to prevent further declines in the value of its currency, but while this can help those with debts
in denominated in foreign currencies, it generally further depresses the local economy.[24][26][27]
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