Foreign Institutional Investor (FII)

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Definition of 'Foreign Institutional Investor (FII)'

A foreign institutional investor (FII) is an individual or institution that invests in a country's stock market from outside that country. FIIs are important for the development of emerging markets because they can provide much-needed capital and expertise. However, they can also be a source of volatility, as they can withdraw their investments at any time.

There are a number of different types of FIIs, including:

* Hedge funds: These funds use a variety of strategies to try to generate returns, including investing in stocks, bonds, commodities, and derivatives.
* Mutual funds: These funds pool money from investors and invest it in a variety of securities.
* Pension funds: These funds are managed by trustees on behalf of employees and retirees.
* Insurance companies: These companies invest their premiums in a variety of assets, including stocks, bonds, and real estate.

FIIs can invest in a variety of different securities, including:

* Stocks: FIIs can buy shares of individual companies.
* Bonds: FIIs can buy bonds issued by governments or corporations.
* Derivatives: FIIs can trade in derivatives, such as options and futures.
* Real estate: FIIs can invest in real estate, such as office buildings, shopping malls, and hotels.

FIIs can play a number of important roles in the development of emerging markets. First, they can provide much-needed capital. Emerging markets often have a shortage of domestic savings, and FIIs can help to fill this gap. Second, FIIs can bring expertise and new investment strategies to emerging markets. Third, FIIs can help to improve the liquidity of emerging market stock markets.

However, FIIs can also be a source of volatility. They can withdraw their investments at any time, which can cause stock prices to fall. Additionally, FIIs may not be familiar with the local market conditions, which can lead to them making poor investment decisions.

Overall, FIIs can play a positive role in the development of emerging markets. However, it is important to be aware of the potential risks associated with investing in FIIs.

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