GLOSSARY/279between the two, for reasons of accountancy, jurisdiction or
statistics, a foreign investment is considered to be a direct investment
if the foreign investor holds 10 per cent or more of ordinary shares or
voting rights in a company. This criterion, though somewhat
arbitrary, is based on the idea that such a holding corresponds to a
long-term investment whose holder has some influence on the firm's
management decisions. On the other hand, a foreign investment of
less than 10 per cent is considered as a portfolio investment. Portfolio
investors are not considered to have any influence on the
management of companies they hold shares in. Portfolio investments
cover all bank deposits and financial investments in the form of public
or private securities. The flow of direct investments, to whatever
destination, represents the sum of the following elements:
- net capital contributions made by the direct investor in the form
of share-buying, capital increase or the founding of a new
company; - net loans, including short-term loans and advances made by a
parent-company to a subsidiary; distributed profits
(reinvested).
EURODOLLARS
The eurodollar market is said to have arisen, during the Cold War of
the 1950s, from the Soviet authorities' wish to capitalise their dollar
reserves without having to sell them on the American money market.
Nevertheless, in structural terms it was the amount of American
capital outflow which caused the market's spectacular boom in the
second half of the 1960s. The growing deficit of the balance of
American capital during this period results from the combination of
three elements: massive investment in American firms abroad,
especially in Europe; the ceiling imposed on interest rates by 0
regulations, which encouraged foreign loans on the American
market and discouraged deposits in the US; the cost of the Vietnam
War. In 1963 the US authorities introduced a tax on non-resident
borrowing, to slow down capital outflow. The result was a shift in the
demand for financial backing in dollars from the US market to the
European markets, where American bank subsidiaries could operate
more freely. The supply of dollars on these markets came partly from
American institutions and companies discouraged by the very low