1. Describe the difference between foreign direct investment and foreign portfolio investment. Who is more likely to engage in foreign direct investment—a corporation or an individual investor? Who is more likely to engage in foreign portfolio investment?

2. Explain how the following transactions would affect U.S. net capital outflow. For each transaction, state whether it represents direct investment or portfolio investment.

a. An American cellular phone company establishes an office in the Czech Republic.

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b. Harrods of London sells stock to the General Motors pension fund.

c. Honda expands its factory in Marysville, Ohio.

d. A Fidelity mutual fund sells its Volkswagen stock to a French investor.

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