A Beginner’s Introduction to Foreign Investments


If you’ve been able to successfully invest your money in mutual funds, stocks or more secure instruments, then you may be ready to take more risks. Diversifying your investment portfolio is one of the best ways to grow wealth, and research has shown it has better long-term results. Along with looking at potential investments in the United States, you should also consider putting some of your money in International Markets.

Types of International Investments

We live in a global economy, which means you have several opportunities to invest your money in foreign markets to help grow your wealth. There are four general categories that foreign investments fall into:


  • Commercial Loans
  • Official Flows
  • Foreign Direct Investment (FDI)
  • Foreign Portfolio Investment (FPI)

Commercial Loans

These are bank loans that have been made to foreign businesses or governments. Commercial loans used to be the most prominent type of investment vehicle in developing countries, but over the years, both FDI and FPI have greatly increased. However, commercial loans have remained constant. They haven’t increased like other investments, but they haven’t decreased significantly either.


Official Flows

This type of investment is usually the type of assistance given to developing countries by developed nations. For example, if the United States gives financial assistance to Malawi, it would be considered a type of official flow.

Foreign Direct Investment

When an investor puts money into a business in another country, including an undeveloped country, it is considered a foreign direct investment or FDI. FDIs may also include buying land or property, or making improvements in a business, in another country.

Foreign Portfolio Investment

These investments include markets a new international investor may be more familiar with, such as stocks or bonds. These instruments are less permanent and are more easily traded. Just as with US investments, investors who put their money into foreign stocks or bonds can make money through interest or dividend payments.

Along with stocks and bonds, there are other global capital markets into which investors can put their money. They include:

  • Money Markets – These are also called cash investments, because these markets have short maturities. Investors can trade currencies like Eurodollars, or securities like negotiable certificates of deposits, banker’s acceptances, municipal notes or commercial paper.


  • Cash or Spot Markets – For experienced investors, this can be a way to make a large amount of money quickly, but it can be extremely risky. Cash markets involve goods that are bought or sold and are immediately delivered. Spot markets represent contracts that immediately go into effect when they are bought or sold.
  • Forex, Interbank Markets – This type of investing involves the trading of currencies between banks and other financial institutions. While banks may engage in this trading for large customers, it mostly done within a bank’s accounts. The Forex market is where currencies are traded. It includes every currency in the world and represents the world’s largest liquid market.

International investing can be complicated, so you need the help of an experienced international financial representative.