International Investment Portfolio
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Money as a means of exchange has been in existence for thousands of years. Since kingdoms and nations issue their own money, and the rate of one nation's currency can be measured in another's, the concept of trading in currency, rather than the goods that currency can purchase, arose centuries ago. Astute traders could buy currency in one nation and sell it in another for a profit. With the telecommunications revolution that has taken place in this century, this type of trade has given rise to an entirely new type of transaction, which some observers liken more to gambling than to strict financial trading. These new traders use computers to conduct business without regard to time zones, and great sums can be made--and lost--in the space of a few seconds. This research explores a hypothetical international investment portfolio, and considers its performance over six weeks in late 1995; all financial information is taken from the Financial Times.Background of International Investing International investment takes two forms: portfolio investment, and direct investment (Lawrence 2A). Portfolio investment occurs when the purchaser is interested only in the return on the instruments themselves, not necessarily on the welfare of the stocks or bonds in question. Direct investment is when an investor participates in the management of the company issuing the stocks or bonds. Currency transactions are by their very nature portfolio investments since foreign inv
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H9).
In the international market, bonds can be sold in the secondary market, which means that the purchase is not buying the bond from the government, but rather from a third party who has already purchased the bonds. The important thing to note is the maturity date and the discount rate of the bond (expressed as an interest rate). The bonds are based on a 100-base system, so that 100 is the face value; prices below 100 indicate a lack of confidence in the bond in question, while prices over 100 indicate a strong level of confidence. In the international market, the purchaser is concerned with which bonds are purchased as well as the purchase themselves.
Because bonds are sold in the secondary market, they are influenced somewhat by the behavior of the governments which back them, but more by the anticipation of traders as to how prices are likely to move on a particular bond. This fluctuation can be difficult to predict, and bond investing, particularly investing in government bonds, is not for the faint of heart. Unless the investor is well versed in the economies issuing the bonds, they are well advised to purchase bonds in relatively stable economies, such as the United States. This is because there is little doubt tha
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Approximate Word count = 1864
Approximate Pages = 7 (250 words per page)
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