Internationl Securities Markets

Question 1

What is a specific concern with overseas investment?

Answer 1

1. Foreign exchange risk - potential loss you could face when converting one currency to another, especially if the exchange rate moves against you between the time you plan a transaction and when it actually happens.
2. Investors need to take into account changes in the value of the domestic currency with the currency of the market where the investment has taken place
3. This can increase/ reduce actual returns on an overseas investment

Question 2

How do retail investors and institutional investors achieve international exposure?

Answer 2

1. Retail investors achieve this through mutual funds and ETFs. (invest in stocks or bonds from other countries)
2. Institutional investors seek exposure by buying securities directly in the foreign markets

Question 3

Explain retail investors vs institutional investors

Answer 3

1. Retail investors are individual investors that buy and sell securities for their personal accounts
2. Institutional investors are organisations that invest in large sums of money on behalf of others. E.g pension and hedge funds or insurance companies

Question 4

What is the largest equity market in the USA?

Answer 4

New York Stock Exchange (NYSE)

Question 5

Briefly explain some concepts of NYSE

Answer 5

1. Operates on a floor-based specialist system of stock trading
2. Designated market makers (DMMs) are assigned specific trading posts and specific stocks.
3. Uses the universal trading platform (UTP) to transmit orders from NYSE members to the trading posts where the security is traded

Question 6

What is the primary order processing system in the NYSE called?

Answer 6

Universal trading platform (UTP)

Question 7

What are some of the main challenges in investing in Emerging equity markets?

Answer 7

Emerging equity markets refer to the stock markets of countries that are developing economically, but are not yet fully industrialized or developed.

1. Quality of market regulation, corporate governance and transparency is lower.
2. Hard to appropriately price securities.
3. More likelihood of political risk.
4. Stock market returns are more volatile.
5. Maybe less liquid than developed stock market makers