Lesson 19 The Benefits and Costs of Investing Internationally Benefits Diversification Investors can spread risk by owning stocks or bonds of foreign businesses Growth Some foreign businesses may be growing faster than domestic businesses this may be especially true for emerging markets ID: 446158
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Investing Internationally
Lesson 19Slide2
The Benefits and Costs of Investing Internationally
Benefits
Diversification: Investors can spread risk by owning stocks or bonds of foreign businesses
Growth: Some foreign businesses may be growing faster than domestic businesses; this may be especially true for emerging markets
Costs
Currency risk:
Exchange-rate changes may mean losses or gains
Instability: Businesses in emerging markets may experience unexpected economic or political changesAccounting standards: Some markets in other countries require less disclosure of informationTaxes: International investments may be taxed differently than domestic investments.
Lesson 19 – Investing Internationally
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International Revenue for Selected
U.S. Companies
Company Name
Description
2010 Revenues
2010 percentage of revenues from international
markets
Coca-ColaSoft Drinks
$35 Billion
75%
McDonald’sFast Food
$24 Billion
60%
PfizerPharmaceuticals$43 Billion55%Procter & GambleConsumer Products$79 Billion32%
Lesson 19 – Investing Internationally
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Exchange Rate Examples
Converting dollars to yen
1 U.S. dollar = 76.8 Japanese yen
A Japanese company’s stock sells for 3,800 yen per share
How many shares can be purchased with $10,000?
$10,000
x
(76.8 yen / $1) = 768,000 yen768,000 yen / 3,800 yen per share = 202.1 sharesConverting yen to dollars1 yen = 0.01 U.S. dollarA U.S. company’s stock sells for $80 per shareHow many shares can be purchased with 1,000,000 yen?1,000,000 yen x ($0.01 / yen) = $13,022$13,022 / $80 per share = 162.8 shares
Lesson 19 – Investing Internationally
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Strong Dollar, Weak Dollar
What is a strong dollar?
The value of the dollar rises compared to another currency, or more than one other.More foreign currency is necessary to purchase U.S. dollars.The value of the dollar is appreciating
What is a weak dollar?The value of the dollar falls compared to another currency, or more than one other.More U.S. dollars are necessary to purchase foreign currency.
The value of the dollar is depreciating.
Lesson 19 – Investing Internationally
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Exchange Rate Changes
Dollar appreciates
Before appreciation: 1 U.S. dollar = 76.8 Japanese yen
After appreciation: 1 U.S. dollar = 80.5 Japanese yen
$1 buys more yen
$10,000
x
(80.5 yen / $1) = 805,000 yen805,000 yen / 3,800 yen per share = 211.8 shares (202.1 when dollar was “weaker”)Dollar depreciatesBefore depreciation: 1 U.S. dollar = 76.8 Japanese yenAfter depreciation: 1 U.S. dollar = 70.5 Japanese yen$1 buys less yen$10,000 x (70.5 yen / $1) = 705,000 yen705,000 yen / 3,800 yen per share = 185.5 shares (202.1 when dollar was “stronger”)
Lesson 19 – Investing Internationally
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Strong Dollar Impact
Who is helped by a strong dollar?
U.S. consumers: they pay less for foreign goods and services.U.S. investors who invest in companies in other nations: they pay less for foreign currency.U.S. importers: they can sell imported goods and services at lower prices.
Who is hurt by a strong dollar?U.S. producers: they are competing with lower-priced imports.
Foreign consumers: U.S. goods and services are more expensive for them to purchase.
U.S. exporters: American goods and services become more expensive for foreign consumers.
Lesson 19 – Investing Internationally
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Weak Dollar Impact
Who is hurt by a weak dollar?
U.S. consumers: they pay more for foreign goods and services.U.S. investors who invest in companies in other nations: the price of foreign currency increases.Foreign exporters: the prices of foreign goods and services are higher.
Who is helped by a weak dollar?U.S. producers: they are competing with higher-priced imports.
Foreign consumers: U.S. goods and services are less expensive for them to purchase.
U.S. exporters: American goods and services become less expensive for foreign consumers.
Lesson 19 – Investing Internationally
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