[高等教育]投资分析RN07_Chapter03.pptVIP

Copyright ? 1999 by Harcourt Brace Company All rights reserved Chapter 3 SELECTING INVESTMENTS IN A GLOBAL MARKET Chapter 3 Questions Why should investors have a global perspective regarding their investments? What has happened to the relative size of U.S. and foreign stock and bond markets? How can investors compute returns on investments outside their home country? What additional advantage is there to diversifying in international markets beyond the benefits of domestic diversification? Chapter 3 Questions What securities are available? What are their cash flow and risk properties? What are the historical return and risk characteristics of the major investment instruments? What is the relationship among the returns for foreign and domestic investment instruments? What is the implication of these relationships for portfolio diversification? Computing Returns on Foreign Investments (1 + HCR) = (1+ FR) ( CER/IER) Where: HCR is the Home Country Return FR is the Foreign Return CER is the Current Exchange Rate IER is the Initial Exchange Rate The Effect of Changing Exchange Rates For U.S. investors, a foreign security’s return in its domestic market is not the “bottom line.” Exchange rates have a major impact on the equivalent U.S. return on a foreign investment. This is known as exchange rate risk The key factor is the changing strength of the U.S. dollar vis-à-vis the foreign currency. The Effect of Changing Exchange Rates Stronger dollar: Income from foreign investments gets exchanged for fewer dollars over time, reducing net return for the U.S. investor. Weaker dollar: Income from foreign investments gets exchanged for more dollars over time, increasing net return for the U.S. investor. Why have a global perspective? Broadened horizons. The foreign market for stocks and bonds is huge! U.S. markets comprise less than half of the total available securities More opportunities broaden the range of risk-return choices Returns on non-U.S. securities have ofte