International Investments, Inc.



International Investments, Inc

Introduction

The focus of this paper would be on evaluating global investing with respect to international stock market indices, interest rate and inflation. This report will also cover a recommendation for investment. Two different methods have been employed to see appropriate evaluation of investment i.e. statistical and macroeconomic.

Discussion

Answer 1: Statistical Analysis

After analyzing data of indicates that were given, it was clear that the stock market indices of all the countries studied increased between 2005 and 2006. Unexpectedly, interest rates for all but Mexico also increased during that period. Inflation rate of each country improved i.e. positive increase in inflation rate. According to theories, this increase would directly be impacting on nominal interest for each given country i.e.

Nominal Interest rate = Real Interest Rate + Inflation Rate

Nominal Interest Rate will increase if there is any positive change in rate of inflation. According to theories, nominal interest rate is a rate that is charged by bank when borrowing money. For making an appropriate stock investment decision, one require determining more information concerning other variables, consequently, this might impact performance of the stock in the international stock market (Koop, 2012).

a) Mean and Standard Deviation

To see how interest rate would impact on specific country stock performance, we would be calculating “Mean” and “Standard Deviation” of the percentage changes of the market indices and also percentage changes of the interest rate. This would appraise any considerable relationship between them.

Following are the results obtain:

Percentage change in market indices

Mean: 30.48

Standard Deviation: 14.56

Average positive change in stock prices is 30.48% but variance change is quite large which state that it is very difficult to predict that what scenario will take place due to greater variances from 2005 to 2006.

Percentage change in Interest Rate

Mean: 97.19

Standard Deviation: 251.75

From 2005 to 2006, there is an average positive change in Interest Rate is 97.19% but Standard Deviation change is quite large i.e. 251.75% which is very difficult to predict that what scenario will take place due to greater variances from 2005 to 2006 and no prediction for healthy future (Doucouliagos, 2011).

b) Hypothesis Test

For more authentic answer, Test Statistic would be performed in order to see if the mean percentage change in stock market indices along with Interest Rate (2005 & 2006) i.e. they are significantly diverse from 0 for establishing a particular relationship. We would be using significance - 0.05.

H0 -Interest rate has no relationship with country's stock market performances

H1 - Interest rate has relationship with country's stock market performances

We will be using two-tail test in order to reject or accept hypothesis.

If value fall in yellow area in “A” we will accept Null hypothesis while if value calculated fall in two side of yellow are in “P” will be reject. For this, we will be taking df:n-1.

Figure 1.1

At significance level of 0.05

H0=0 DF: n-1

H1?0 DF: 18-1 =17 t: a/2 DF: 17 for 95% CI: a: 0.025x2

T: x¯ - M ÷ s/?n

T: ...