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Chapter 1

Background of the Study

Foreign Direct Investment (FDI) is one of the sources for capital of most companies.
FDI is an important to companies as source of finance since it helps the companies
to cover its deficits. Another advantage of FDI is that it helps the facilitation of the
transfer of technology, skills, and the expansion of the local companies into the
foreign market. (Krkoska, 2001)


Foreign direct investment (FDI) has been rising steadily in recent years. In 2014, FDI inflows reached
USD 6.2 billion, which represents a more than 65% increase compared to 2013.

FDI is an important source of financing for transition economies as it helps to cover
the current account deficit, fiscal deficit (in case of privatisation-related FDI), and
supplements inadequate domestic resources to finance both ownership change and
capital formation s FDI also facilitates transfer of technology, know-how and skills,
and helps local enterprises to expand into foreign markets

Unlike domestic security, DR’s age is not even one century. Moreover, DR firstly was
used as a financial-economical institution even though it did not have enough legal
bases. It only relied on share collateral of foreign companies. Over and above share
collateral DR did not have any other legal leverage. However it was gradually
transformed in the legal field as well. Even though DR was invented and developed
until the modern stage mainly in the US,just in last one-two decades this institution
spread over the developed and developing countries.

Given the long distance between investor and issuing company, political instability
in the developing country lured? economists to solve them. And they measured
risks and tried to create suitable device to suit them. However legal differences,
absence of “treaty on the reciprocal recognition and enforcement of judgments in
civil and commercial matters” ref? and other such kinds of legal risks of DR did not
attract much attention. All of these contributed to the fact that the DR has legal
shortages today.

It is also worthwhile to mention that the main goal of DR is to raise capital for
developing countries (in privatization) from developed countries and it takes place
between two or more such kind of countries where economical, political cultural
differences exist which make legal problems inevitable in the field of DR.

From the scientific point of view DR was not researched much. All researches
concerning it were almost carried out only in the US and from the financial-
economic perspective. There is only little legal experimentation related to DR which
generally did not embody all of its legal problems. For mentioned reasons DR was
chosen as a research object of this thesis.

financial-economic information. practices and guidelines of investment banks and few legal researches about DR were used as sources. . Research was carried out through the method of desk research while the main source was internet.Since there were not many researches conducted in this field literature and other kind of informational sources regarding securities.