INTERNATIONAL FINANCIAL MARKETS

International Financial Markets and Institutions



Table of Content

INTRODUCTION1

DISCUSSION1

Options available for investing1

Magnitude of Risk1

Foreign stocks risk portfolios2

Diversification strategy3

A complicating factor5

Restrictions on foreign investment5

Market structure of International Market6

Investing In Foreign Securities8

Multinational corporations8

Dual listing9

International mutual funds9

Recommendation to Client10

Consideration for shares11

Mechanism for dealing in international securities markets12

Economic indicators13

Indicators of monetary and fiscal13

Volume in the stock market13

CONCLUSION14

REFERENCES15

International Financial Markets and Institutions

Introduction

International financial markets have also played an important role in absorbing the negative effects caused by the global crisis. This has also continued to play their role in exploring the real prices of securities and provide the necessary funding for investment, especially in light of the deepened international liquidity crisis.

This paper focuses on the recommendation for the investment in different international securities in order save the money as the risk and return objective is the preservation of the money. Furthermore, this paper will also focus on the factors which have direct impact on the foreign portfolio.

Discussion

Options available for investing

The options which are available in the international market are in bond investment and stock investment. The portfolio that will be advised to a client would be mixture of bonds and stocks as the client nature of investment preservation where we have to protect the investment (Pere G., 2005, pp.36).

Magnitude of Risk

The magnitude of risk reduction that can be expected as a result of the effect of the portfolio, this determines the correlation between stock returns. Stocks with a high degree of correlation experiences similar changes in rates of return. When the yield of some shares in a portfolio is less than expected, and the yield of other shares repeats this pattern, then the set is strongly correlated stocks of investors gives a very slight decrease in risk. Therefore, in this case the loss will be offset almost than profits. Reducing the risk caused by the action of portfolio effect will manifest itself in the most, when the shares in the portfolio will have a maximally low degree of correlation with each other on their yield.

Of course, to some extent, all stocks are correlated with each other. Measure of that part of the risk associated with the action, which cannot be eliminated at all, either to reduce the expense of other areas in the portfolio shares, called systematic risk. Same part of the risk inherent in the action, which ranges from “neighbourhood” with other actions, is called unsystematic risk. Consequently, investors are concerned about the risk associated with the shares, and this can only concern about its systematic component (Howells P., Bain K., 2011, pp. 65).

Foreign stocks risk portfolios

Foreign stocks can help investors to reduce their risk portfolios to the extent that the profitability of foreign shares is not correlated with national income shares. Analysis of returns of shares issued in foreign markets, confirms that they are only slightly correlated with the yield on U.S. stocks. Of all the foreign securities markets UK and Canadian stocks were the most correlated with the ...