CandleFocus

Foreign Institutional Investor (FII)

Foreign institutional investors (FIIs) are institutional investors based outside of their official home country. FIIs typically include large institutional investors such as banks, hedge funds, insurance companies, and mutual funds. Such institutions make investments in foreign financial markets, including stocks, bonds, currencies, commodities, and derivatives.

The presence of these institutions has become more common over the years as global financial markets have grown more interconnected and countries have pursued investments beyond their borders. By investing in other countries, FIIs can diversify their portfolios, maximize returns, and capitalize on opportunities in foreign securities exchanges that their home country markets may not offer.

FIIs can have significant impacts on the economies of the countries in which they invest. FIIs have the potential to help generate capital and promote economic growth, as well as to help increase market liquidity and reduce volatility by injecting foreign currency into these markets.

However, some countries place restrictions on the amount that FIIs are allowed to invest in their markets. Such regulations are typically designed to protect domestic markets and investors, encourage economic growth, and guard against market manipulation and excessive speculation. For example, Indian markets limit FIIs to a maximum 24% ownership of a given firm.

In addition to country-specific regulations, FIIs are also governed by the international conventions that govern the flow of capital across borders. Such conventions help ensure transparency, protect against market abuse and manipulation, and create a stable and fair investment environment.

All in all, FIIs represent a growing trend of globalization that has been enabled by advancing technology, increasing interconnectedness, and advances in finance. While such investors can have significant impacts on foreign markets, countries also need to regulate their activities in order to create a fair and stable environment for local investors.

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