FII Full Form
What is the full form of FII?
FII stands for Foreign Institutional Investor. It is the investment made by a person in a foreign financial market other than where these organisations are based.
Who is The FII?
In any financial system, foreign institutional investors are crucial. These are the large institutions that make significant financial investments in the markets, including investment banks, mutual funds, Hedge funds, high-value debentures etc. Markets tend to rise upward when these big bulls acquire assets and vice versa. They have a significant impact on the financial system's overall inflows.
Why Does FII Invest in Developing Countries?
Due to their emerging economies, foreign institutional investors favour developing nations because they provide greater development potential.
On occasion, FIIs make a brief investment in the securities. Although this helps the market's liquidity, it also makes the movement of money unstable.
As investors establish new businesses in other nations, FDI increases opportunity and creates new jobs. This may result in residents having more money and purchasing power, which will help the targeted financial system get boosted.
FII’s Impact on The Indian Financial System
In current history, India's economy grew at the quickest rate among developed nations, and it has the potential to surpass Japan by the end of the next five years to rank third globally.
The Indian economy is the "silver lining" in the world economy, according to the IMF. India exceeded the World Bank's growth projections for 2015–16 for the first time, with economic growth of 7.6% in that year and an anticipated 8.0% in 2016–17. Where there are expectations of a country's currency appreciation, FII either rises or falls. Since liberalization, FII flows have contributed a vital amount that has nearly strengthened India's payment system.
Advantages of FII
FIIs will strengthen the region's capital inflows.
These financiers favour equity over debt usually. They will be able to maintain and even enhance the capital structures of the businesses they are a part of as a consequence.
They benefit the competitiveness in the financial market.
Financial innovation in the capital markets is supported by FII.
Analysts and asset managers handle these entities effectively. They often strengthen the nation's capital markets.
Disadvantages of FII
The economy is experiencing inflation due to portfolio investment. High demand for local currency results from a significant inflow of foreign institutional investment.
Exports become more expensive as a result of the price increase, which ultimately results in lower demand on the global market. Consequently, it has a devastating effect on exports.
Hot money might negatively affect nations and banks. When money enters a country, the exchange rate rises at the same moment; conversely, when money leaves a country, the exchange rate declines. Therefore, if the money is removed suddenly, the banking industry would suffer to provide the financial needs (they may face a shortage of funds)
Frequently Asked Questions (FAQs)
An ownership interest in a foreign company or project is described as a foreign direct investment (FDI) and is made by a foreign investor, business, or government.
A parent firm invests in a foreign nation through FDI. On the other hand, FII refers to investments made by investors in overseas markets.
FDI enters the primary market, whereas FII enters the secondary market.
FDIs are long-term investments, whereas FIIs are short-term ones.
Each one of the shares used to split ownership of a corporation or company constitute stock in the world of finance.
Securities such as stocks and bonds can be purchased and sold on a stock exchange.
Hot money is a term used to describe investments that are eagerly chased by short-term return investors. These investors research the market for opportunities to invest in short-term, high-interest-rate securities.