Risk And Return From Investing In Foreign Securities Finance Essay - Free Essay Example

Sample details Pages: 8 Words: 2264 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Cause and effect essay Did you like this example? The purpose of this essay is to examine the implications, risks, and returns associated with foreign security investments. Analyzing these factors associated with investing in foreign securities has become extremely important due to the increasing number of foreign security investments in recent years. This essay introduces analytical factors to determine the attractiveness for investing in foreign securities. Don’t waste time! Our writers will create an original "Risk And Return From Investing In Foreign Securities Finance Essay" essay for you Create order Analytical factors include implications of economic objectives and accounting standards, returns of increased profitability and portfolio diversification, and risks of exchange rate and currency fluctuations. The conclusive findings of this essay exacerbate the need for analysis of implications, risks, and returns when investing in foreign securities. Introduction Any security denominated or expressed in foreign currency is referred to as a foreign security. Foreign securities usually take the form of common or preferred stocks, bonds, debentures, and shares. For purposes of this paper, analysis of foreign security investments will take the form of common stocks. Analyzing the risks and returns associated with investing in foreign securities is becoming increasingly significant due to the growing international investment in the last several decades. Investing in foreign securities has just recently become increasingly efficient and instantaneous through technological advancements. The scope of this paper includes implications, risks, and returns associated with foreign security investments. A foreign security is similar to that of a U.S. security. Implications involved with foreign security investments include a thorough analysis of foreign governments economic objectives, and standards of accounting. There are two chief reasons why peopl e invest in foreign securities, which include returns of increased profitability, and portfolio diversification. However, integrating investments internationally requires analysis of two distinctly different factors of risk such as exchange rate and currency rate fluctuations. Foreign security investments, in recent years have become an integral piece of the global investments arena. Several ways to invest in international securities are available. Foreign and domestic markets exist for trading foreign securities. Foreign securities can be purchased through a broker in the United States market in the form of an American Depository Receipt (ADR), or in the same form as they appear in the foreign country. Some countries only trade their companys stock on a foreign stock market. In this case, your broker may process your order for you. One way in invest in foreign securities is to go through a brokerage firm. Implications of Foreign Security Investments Economic Objectives Government economic objectives are of great importance when deciding to invest internationally. Countries economic objectives illuminate possible political risks associated with exchange rate movements. Also, economic objectives are considerably important in the analysis of a countries inflation risk. Economic objectives provide a picture of the countries stability, growth, or recess of a currency. Therefore, a thorough analysis of countries economic objectives is becoming more important than ever before in terms of making a wise investment decision. Company information is readily available to the investors seeking to invest in foreign securities. As mentioned by Ruben Shohet (1974), says that industrial countries with high inflation can cause adverse effects on equity investments. Economic objectives are extremely influential in the determination of a countries inflation rate. The government can intervene to affect the inflation rate by changing the nations interest rate. Gener ally speaking, a national with high rates of expected and real inflation are less likely candidates for investments due to higher prices and lower interest rates. Chairman Ben S. Bernanke (2010), in his most recent speech, stated that helping households make more informed decision requires the understanding of central bank policies for lowering economic and financial uncertainty. A nations economic objectives set the standards for all aspects of investing in the home countries assets. Economic objectives are mainly determined by a nations government, and encompass standards of accounting, political climate, currency valuation, and exchange rate fluctuations. A thorough analysis of a nations economic objectives is vital in determining countries investment attractiveness. Accounting Standards . Analysis of different accounting standards is highly recommended when investing in foreign securities. Many foreign enterprises are expected to present their accounts consistent with the U.S. capital market; this is because in recent years there is an increasing attractiveness in U.S. capital markets. Ruben Shohet (1974) says countries standards of accounting as well as auditing are substantially different. Some countries have similar accounting standards as the United States. However, other countries have considerably different accounting standards. Inevitably, accounting standards differ from culture to culture. A considerable amount of countries have different accounting standards and are legally enforced differently according to the economic objectives of a government. The United States accounting standards are in ordinance with Generally Accepted Accounting Principles (GAAP). Another widely adopted accounting standard is that of the International Accounting Standards Board ( IASB). As mentioned earlier, some foreign securities can be purchased on the United States market with brokerage assistance. An advantage to purchasing foreign securities registered with the New York Stock Exchange (NYSE) is that all listings are required to submit audited and consolidated financial statements. This allows the investor to analyze the foreign securities financial statements to appropriately determine the investment potentiality. However, foreign firms that sell their securities on foreign markets require the investor to do additional research to determine whether or not to invest. The investor must be fully aware of the foreign accounting standards required by different nations in which they wish to invest. In recent years, many nations have adopted international accounting standards to gain access to the United States capital market. Returns Increased Profitability Profitability is limited when a corporation solely invests in domestic stocks. Investing solely in domestic securities such as that found in the United States, strictly limits profitability to the returns available from domestic securities. However, expanding security investments to foreign securities increases potential profits exponentially. Corporations have only recently realized the increased profitability potential by investing internationally. Recent evidence provided reasons to expand investment opportunities to encompass foreign stocks as well as domestic stocks. According to Ruben Shohet (1974) international investments bring forth a universe of investment opportunities. It is a fact that expanding investments into the global arena encompassing foreign securities increases profit potentiality exponentially. Increasing your investment scope to include foreign securities introduces greater possibilities of increased profitability. Increased profits from expanding investm ent opportunities in the foreign security arena can be linked and associated with portfolio diversification. Expanding investment opportunities into the investment arena include returns from domestic securities as well as foreign securities. Also, investing in domestic and foreign securities ultimately reduce inherent risks associated with securities markets. This is due to the fact that when one market is doing poorly the other market should be doing much better. Ultimately, increasing profitability potentials should be one of the best reasons to expand investments to encompass foreign stocks. Given that many market makers have emerged in the past forty years, it has become extremely easy to begin investing in foreign securities to increase profitability. Portfolio Diversification Diversifying your portfolio with both domestic and foreign stocks substantially reduces the overall investment risk. United States Securities and Exchange Commission (2007) stated that benefits of diversification include the compilation of foreign company and market investments that differ from the U.S. economy. United States investment returns sometimes move in a different direction than international market investment returns. Also, even if both domestic and international returns are adversely affecting overall portfolio returns they do so at a substantially different rate. Diversifying an investment portfolio can reduce portfolio risk while simultaneously increasing possible returns. However, according to the United States Securities and Exchange Commission (2009), if you dont include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal. Diversifying a portfolio using foreign stock markets can help balance overall losses when U. S. stock markets are performing poorly. The U.S. stock market remains the largest in the world; however, foreign stock markets now account for more than 50% of all global stock market capitalization. Taking advantage of growth rates abroad and diversifying portfolios globally is becoming increasingly important in reducing portfolio risk. Cathy Pareto (2010), states that Modern Portfolio Theory (MPT) establishes that global markets fluctuate in different intervals and by integrating low correlation assets in an investment portfolio appropriately, risk will be reduced despite the assets volatility. Generally speaking, market conditions that cause one asset category to have positive returns often cause another asset category to have the opposite effect. A foreign security investment strategy for portfolio diversification is to invest in a group of differently categorized securities, that when one investment category is negatively affected the other investment category is positively affected. By investing in more than one category of foreign securities the risk of losing money is greatly reduced. The ultimate goal of portfolio diversification with foreign securities is to balance risks with returns, and hope for a larger return than losses. Risks Exchange Rate Risk As investors begin to broaden their investment universe and take advantage of foreign stocks, one must also assume the risks associated with foreign exchange rate fluctuations. There are several ways that changes in exchange rates can affect investments in foreign securities. According to the U.S. Securities and Exchange Commission (2007) explains how investment returns can increase or decrease when exchange rate fluctuations between foreign currencies and the U.S. dollar change. Ultimately, exchange rates affect investment returns when you sell the foreign securities, and the need arises to convert the money you receive back into dollars. A thorough analysis of future exchange rate fluctuations, based on your personal techniques, must be conducted in order to foresee beneficial or adverse fluctuations. There are techniques commonly used to reduce the inherent risk of exchange rate fluctuations. Such techniques include hedging exchange rate risks by purchasing insurance. Insuran ce strategies available include financial derivatives such as options and/or futures. Examples of options are calls, puts, straddles, strangles, and spreads. All of these examples of options are used exclusively, or by combining specific options, to hedge portfolio risk due to exchange rate fluctuations. Futures, for example, are used to lock in the price of an exchange rate in the future. Futures are very useful if you predict the exchange rate has high volatility, or will have an adverse effect on your portfolio. Also, futures are prominently used as a hedging technique by exporters to insure minimum required profits, by locking in the sales price in the future. Speculation is inherent in purchasing financial derivatives as insurance, because you are in essence betting on the future exchange rate movement based on your prediction techniques. Currency Risk The risks associated with the depreciation or appreciation of currency is inherent when investing internationally. Cathy Pareto (2010) exacerbates the notion of how currency fluctuations can affect foreign investments, and how such fluctuations increase or decrease the risks of investing in foreign securities. Therefore, analyzing factors that influence currency risk is vital when investing in foreign securities. The analysis of currency risk factors encompasses a nations political climate, inflation rate, and interest rate expectations. A nations political environment is a major determinant of currency valuation in the short and long term. This is because in some cases governments intervene to set short and long term currency valuation. The political environment of a nation that an investor wishes to invest in foreign securities must be analyzed and researched thoroughly to determine the risks inherent with investing in that particular country. In the long term, inflation erode s a portfolios purchasing power, Richard Barrington (2010). A nations current or expectation of inflation rates can make or break foreign security investment decisions. Inflation rate expectations are good determinants of a nations purchasing power in the future. A nations economic objectives can determine inflation rate, which in turn set the bar for expected future imports and exports. Despite the perceived dangers of foreign investing, an investor may reduce the risk of loss from fluctuations in exchange rates by hedging with currency futures, Cathy Pareto (2010). In general, financial derivatives are an excellent way to hedge inherent risks associate with any financial asset. In the case of currency futures, reducing inherent risk is important especially if predictions of currency fluctuations are highly volatile or adverse. Conclusion Analyzing the risks and returns associated with investing in foreign securities is becoming increasingly significant decision making process in determining where to invest as well as what to invest in. It can be concluded that before you invest in foreign securities, you should learn as much about the company and its home country as you can. Obviously implications of foreign security investments stand with high importance and relevance when determining which securities to invest in. Expanding an investment portfolio to encompass foreign securities is an excellent way to increase potential profits. The returns associated with expanding investments to include foreign securities are exponential. As you can see there are several risks associated with foreign investments such as that of exchange rate and currency fluctuation risks. However, several techniques are available to reduce the inherent risks associated with foreign investments. As mentioned earlier, techniques for hedging r isk of foreign investments include purchasing insurance such as options or futures. These portfolio hedging techniques are commonly used to decrease risks associated with foreign investments. Also, returns of foreign security investments can be hedged and increased through the process of portfolio diversification. In conclusion, investing in foreign securities has risks and returns associated with expanding investment portfolio. Analysis of foreign security implications must be conducted to determine investment potential. Risks associated with investing in foreign securities are an important ingredient for analysis, and can be reduced with commonly used insurance strategies. Investing in foreign securities has exponential returns that in most cases outweigh the perceived risks.

Censorship And Its Effect On Society - 992 Words

Sometimes censorship might have a positive effect on society. For example, parents consider censorship to be important in order to protect minors and some group of audiences from indecent broadcast or obscenity. Contents like this are deemed to be harmful or offensive to public good and are usually highly regulated by the government. Most parents agree that it is imperative to censor obscene entertainment in order to safeguard children from accessing harmful materials and this is one of the positive effects of censorship. On the contrary some people might have a different view and argue that viewing decisions should be made at home without government interference. They might argue that parents can exercise their authority on their children without resorting to censorship. There are devices that make it possible to block access to specific programs and web sites, reviews about books, recordings, and films are available easily. This will help parents determine what they feel is appropr iate for their youngsters. Advocates of these idea believe that parents have the right to challenge any work if the teaching contained is against their belief. One of the major effects of censorship is having limited access to information and a decline in creativity or openness. The people in power can determine what can and cannot be published by blocking the spread of information. This system prevents the information from being created and in the long run, it might result in a generationShow MoreRelatedCensorship And Its Effect On Society1680 Words   |  7 PagesI. A. Censorship. This single word describes the world’s history of literary sabotage, the idea of rejecting a concept or other medium of propaganda simply because it exhibits a disagreeable or supposedly immorally tepid aspect, then forcibly substituting a more ‘ethical’ ideal. 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In the 20th Century, censorship was achieved through the examination of books, plays, films, television and radio programs, news reports, and other forms of communication for the purpose of altering or suppressing ideas found to be objectionable or offensive. There have been assorted justifications for censorship, with some censorsRead MoreFahrenheit 451 By Ray Bradbury1200 Words   |  5 Pagesby life in society, authors are able to create work that speaks to their observations and views on society and its functions. In the book Fahrenheit 451, Ray Bradbury incorporated the corruption of the society in which he lived in into the dystopian society created in his book. Fahrenheit 451, a fictional book about a protagonist’s attempt to overcome a dystopian society’s corruption, was written by Ray Bradbury while living in 1950â⠂¬â„¢s America. The book focuses on themes of censorship, and illustrates

Effective Management Personal and Professional Skills free essay sample

Three Personal and Three Professional Skills for Effective Management Effective Management is very crucial in a business, this helps in tackling problems by remaining focused and overcome challenging situations which a company may encounter. This also helps in making the company more efficient. To be an effective manager, one needs to have certain skills, both personal and professional skills. Personal skills The following are personal skills which a good and effective manager should have: †¢ Communication skills †¢ Supportive skills †¢ Enthusiasm Communication skills: It is essential for a manager to have good communication skills, especially with his employees. This is how ideas are conveyed and shared. Listening skills are also part of communication skills, there is no point of starting a communication without getting no feedback, or ignoring the feedback one may have given. A manager is not only there to make rules for staff to abide with, but the aim of a manager is to set up missions, goals and objectives for the company. We will write a custom essay sample on Effective Management: Personal and Professional Skills or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The manager needs to listen to new ideas which employees and other managers may propose and suggest. There should be no barriers to communication with employees, since the more communication there is, the more ideas are being shared. Communication skills maybe through various mediums- through phones, emails, face-to-face, meetings and presentations, an effective manager is to know how to choose the best medium of communication, depending on the message he would like to pass on to. Manager should not only have good communication skills with his employees but also when is during a meeting with other organisations, as he/she will be representing the whole organisation. If he/she gives negative impact, then the organisation is giving a negative reputation. Supportive skills: A manager should support staff and not make them feel inferior. By supporting employees, one is to listen to what they have to say and encourage them in every aspect. When the employees are getting the support they need, they feel more involved and this leads to higher motivation among staff members. High motivation helps them to work at their best performance, where better results are achieved. Therefore for optimum results, this is very important for a business. Enthusiasm: A manager is to be enthusiastic. It is known that negativity is contagious; this means that if for example employees are being supervised under a negative manager, they tend to be pessimistic as well. Managers are to bring enthusiasm at workplace with a ‘can-do’ attitude, if there will be no enthusiasm, there will be lack of motivation. Enthusiastic managers are determined, and so they strive to achieve the company’s goals and overcome any obstacles and challenges without giving up. Professional skills: †¢ Leadership skills †¢ Goal setting skills †¢ Problem solving skills Leadership skills: To have a good and effective management, a manager is to be able to motivate staff toward a common goal. A manager / leader is to know and understand the needs and characteristics of him/herself and of each staff member. This will help to show respect to every individual and to deal directly with each person. This creates a good rapport with all employees, which also leads to a higher motivation. Goal setting skills: There is no point of managing a business without having any aims and goals. A manager should set up goals for the employees to follow. Such goals are to be realistic and challenging. A manager strives to make the company successful, this cannot happen if the goals set are not challenging, if no new ideas are shared and the business would not adapt to new technology changes, it will make it no better than another company. An effective manager should set goals which are innovative. For every goal set, an intensive research is to be done, to verify that it satisfies the customers and potential customers demand. Problem solving skills: Every business sometime or another find obstacles and difficulties. To be an effective manager, one is to be a good problem solver, by analysing and tries to identify the cause of the problem. A manager should know how to come out with new ideas and new options to overcome the problem. It is important for one to evaluate well each option and to consult with other employees and/or managers to ensure that the best decision is being taken.

The changing nature and activities of pressure groups †to what extent are they becoming more important Essay Example Essay Example

The changing nature and activities of pressure groups – to what extent are they becoming more important Essay Example Paper The changing nature and activities of pressure groups – to what extent are they becoming more important Essay Introduction Grant, who first defined the idea of insider and outsider groups has since pointed out that the distinction is not so clear now as before. He also points out that a newer method of pressure group activity is occurring with more effect, namely the presence of large-scale demonstrations and direct action, often organised on a national or global scale, using the internet. Such action has been seen recently in the worldwide demonstrations against the war in Iraq (2003), and in regular international action against certain environmental summits.In the UK, we have seen massive demonstrations both against the Iraq war, and against the banning of hunting with hounds. Often, this pressure group activity is characterised by having no clear leadership, and by therefore presenting itself as originating from the mass of the people. However, what did these recent mass marches actually achieve? If anything, these experiences suggested that traditional campaigns based around marches are nowhere near as effective as they used to be.There is no doubt though that pressure groups have a considerably significant place in British society in general and the political system in particular. Furthermore, it is clear that the importance of their role has been increasing and is likely to continue to do so. We can identify a number of reasons why this is so.RecruitmentThe goal of political parties is to build coalitions of support over broad-ranged policies to win elections. Naturally, people with strong feelings on controversial issues (that may offend groups of voters) do not get a great deal of encouragement from, or rise to prominence within, political parties. Pressure groups on the other hand are full of these motivated, ideological individuals. Rising living standards, greater access to information and a growing ‘social consciousness’ have combined to ensure that many more people have the time, inclination and energy to reject the compromises of the major political parti es in favour of more radical solutions (the Countryside Alliance, although relatively new, has in excess of 100,000 members). Similarly, more people feel able to spend a portion of their income and a degree of their time pursuing their interests via membership of pressure groups rather than political parties. The Royal Society for the Protection of Birds has over one million members and the RSPCA recruits up to 50,000 new members a year. Membership of the Labour Party on the other hand is steadily falling from almost three quarters of a million in the post-war decades to around 200,000 today.ParticipationWe have seen that the importance of parties has been declining. Party memberships have fallen dramatically (as have voting turnouts), and the ordinary members of parties now have relatively little influence over the policy-making process. But membership of pressure groups has been growing – so too have their activities. Social and political research indicates strongly that po litical participation and a general interest in politics is not declining as statistics might suggest. Rather the nature of interest and participation is changing. The large numbers of non-voters and apparently disillusioned non-participants (concentrated among the young) have shifted their political awareness away from party politics in favour of specific political issues. Clearly pressure groups provide a more appropriate vehicle for such interest than do parties.Access pointsPressure groups now have many more ‘access points’ to the decision-making institutions than has been true in the past. It used to be the case that pressure groups concentrated the vast majority of their efforts on government ministers, civil servants and their advisers, or on Parliament. But decision making in Britain today has become spread over a much wider range of institutions. This process has four facets: the importance of the European Union; devolution of power to national regions; the gro wth of policy-making bodies outside the traditional party system; and the increasing importance of the courts as a result of the passage of the Human Rights Act.The European UnionThe clearest example has been the growing jurisdiction of the European Union. Those decisions that are made in the Union have forced pressure groups to adopt two new methods. First, they have switched many of their activities to the European Commission, the Committee of the Regions, the Social and Economic Committee and various other Union institutions whose task it is to develop policy. At the same time, the European Parliament is becoming more influential. Therefore, lobby groups have sent increasing numbers of representatives to the Parliament and its committees. In 2005 there were more than 4200 accredited (that is, permitted to operate freely) lobbyists attached to the European Parliament.Of course, pressure groups continue to lobby national ministers, who make the final decisions, but there is ample o pportunity for groups to put pressure on permanent institutions that have consciously opened their doors to representatives of interest groups. It is often argued that the European Union is an undemocratic body and, in the traditional sense of ‘parliamentary democracy’, that is probably so. But it is also noteworthy that the European Union accepts that the representation of interests is vital if they are to recommend policy which will enjoy popular consent.Second, groups have understood that they must unite with their European counterparts if they are to exert effective pressure. So we have seen the development of an increasing number of ‘federated’ groups in Europe. All major trade unions, producer groups and environmental campaign organisations, for example, have developed their own European-wide institutions. The brief list of examples of European pressure and interest groups shown below gives a flavour of the range of issues being treated in this way: E uropean Automobile Manufacturers Association Friends of the Earth Europe Association of Electricity Producers European Fair Trade Association European Mine, Chemical and Energy Workers Federation European Small Business Alliance Association of Commercial Television in Europe European Association for the Defence of Human RightsDevolutionA considerable amount of power has been devolved to Scottish and Welsh government (and to Northern Ireland, when devolved government is operating there). The main policy areas which have been devolved are: health, education, transport, planning, industrial development, agriculture and local government services. Pressure groups that are involved in these policy areas have naturally been forced to move some of their operations to Edinburgh, Cardiff and Belfast. Of course, the main thrust of their activities remains in London or Brussels, but there has been a considerable shift in their operations.Extra-party institutionsAs we have seen, the early consid eration of policy has shifted away from party institutions. Instead, there is now a wide range of external think tanks, policy units, private advisers and working parties, which have the task of feeding policy options into the government machinery. Pressure groups have a vital interest in becoming involved in the early stages of policy consideration. The main way in which they can achieve this is by employing professional lobbyists, who can find their way through the maze of policy-making institutions which now flourish at the centre of British politics. Professional lobbyists undertake the critical task of identifying the key decision make:-securing contact with them and ensuring that the information that a pressure group wishes to disseminate finds the appropriate targets.The Human Rights ActThis Act was passed in 1998 and brought the European Convention on Human Rights into British law in 2000. Its effect was to reinforce and introduce a wide range of rights, many of which were d esigned to protect minority interests. Since many pressure and interest groups represent such minorities, the Act provided many new opportunities for them to assert their interests. By applying to the courts, a minority group may be able to seek a judgement that protects them from oppressive legislation. The human rights campaign group, Liberty, for example, has been especially active in this judicial field since the passage of the Act.Direct actionIt used to be the case that insider pressure groups were seen to have a distinct advantage in gaining the attention of policy and decision makers over outsider groups. This was because they had direct access, were generally felt to be more responsible in their demands and had developed long-term links with government and Parliament. This picture has been changing, however. Many groups now feel that they can exert more pressure on government by mobilising public opinion than by pursuing direct links with decision makers. Certainly there is a good deal of evidence to suggest that modem governments are responsive to mass political movements – nearly always outsiders – provided they can demonstrate widespread support. The Countryside Alliance has certainly found this, as have old-age pensioner groups, development aid campaigners and environmentalists. Direct action, when properly organised and well supported, is growing in importance.SummaryMany millions of British citizens consider themselves to be detached from the political process. There has been growing disillusionment with traditional party politics; fewer people than ever bother to vote in elections; and party membership has been falling steadily. But there is a different perspective that we can adopt. In terms of pressure group activity, especially since the emergence of new social movements, it could be claimed that political activity and participation have never been higher.Though a decreasing number of people identify closely with any political party or ideology, a growing number are willing to take positive action in pursuit of a cause about which they feel passionate. Furthermore, as representative institutions – especially parties and Parliament – have become increasingly marginalised and impotent, there has been a renewed interest in the influence of direct action. As long as we enjoy an independent civil society, and as long as politicians remain sensitive to public opinion, pressure groups will remain a key feature of British democracy. The changing nature and activities of pressure groups – to what extent are they becoming more important Essay Thank you for reading this Sample!