Chapter 11

Question 1

List reasons for overseas investments

Answer 1

1. To match liabilities in foreign currency to reduce currency risk
2. Increase E(returns) = emerging markets
3. reduce risk by increasing diversification especially in different industries

Question 2

List 12 problems with overseas investments

Answer 2

RooPAul loving MCFLurry and TaTERs is false information
1. Restrictions on ownership of certain shares
2. Risk of adverse political developments
3. Different accounting practices
4. A different market performance and the associated mismatching risk
5. Currency fluctuation risk (rise in domestic currency or fall in purchased currency)
6. Language problems
7. Different tax treatment (double tax agreements are needed)
8. Time delays
9.  expertise needed to assess the market, bc:
a. More variables to analyse
b. More work to overcome problems with poor info
10. Poorer regulation in some countries
11. Additional administration functions: custodian, dividend tracking and collection
12. Less info available than in home market

Question 3

Describe the ways the achieve indirect exposure in overseas markets

Answer 3

1. Investing in multinational companies based in home market
2. Investment in collective investment vehicles specialising in overseas market
3. Investment in derivates based on overseas assets

Question 4

Factors to consider when investing in emerging markets

Answer 4

Emily
* Availability and quality of info
o To see whether investment is worthwhile
* Current market valuation
o Emerging markets have less efficient pricing than largest markets more anomalies  investors can buy cheaply
o  risk   demand prices
* Possibility of rapid economic growth rate
* Better diversification
* Currency stability and strength
* Level of marketability
o Less marketable
* Degree of political stability
o Most lack volatility of investment returns
* Very volatile
* Market regulation
* Restrictions on foreign investment
o Some markets have tight controls on ownership by foreigners
o  political leadership may also affect this
* Range of companies available
* Poor regulation of stock markets  fraud and insider trading by local investors
* Communication problems

Question 5

Define warrants

Answer 5

An option issues by a company over its own shares. Holder has right to purchase shares at specified price at specified times in future from company
What holder doesn’t get vs what they get:
* Dividends ❌
* Voting rights ❌
* Protected to change in ordinary share capital like rights issue and scrip issues = # of shares they get are adjusted ✅

Question 6

How are