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Investing Internationally

Lesson 19. Investing Internationally. Slide 19.1. Lesson 19 – Investing Internationally. The Benefits and Costs of Investing Internationally. Benefits Diversification: Investors can spread risk by owning stocks or bonds of foreign businesses

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Investing Internationally

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  1. Lesson 19 Investing Internationally

  2. Slide 19.1 Lesson 19 – Investing Internationally 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 changes • Accounting standards: Some markets in other countries require less disclosure of information • Taxes: International investments may be taxed differently than domestic investments.

  3. Slide 19.2 Lesson 19 – Investing Internationally International Revenue for SelectedU.S. Companies

  4. Slide 19.3 Lesson 19 – Investing Internationally 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 yen • 768,000 yen / 3,800 yen per share = 202.1 shares • Converting yen to dollars • 1 yen = 0.01 U.S. dollar • A U.S. company’s stock sells for $80 per share • How 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

  5. Slide 19.4 Lesson 19 – Investing Internationally 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.

  6. Slide 19.5 Lesson 19 – Investing Internationally 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 yen • 805,000 yen / 3,800 yen per share = 211.8 shares (202.1 when dollar was “weaker”) • Dollar depreciates • Before depreciation: 1 U.S. dollar = 76.8 Japanese yen • After depreciation: 1 U.S. dollar = 70.5 Japanese yen • $1 buys less yen • $10,000 x (70.5 yen / $1) = 705,000 yen • 705,000 yen / 3,800 yen per share = 185.5 shares (202.1 when dollar was “stronger”)

  7. Slide 19.5 Lesson 19 – Investing Internationally 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.

  8. Slide 19.6 Lesson 19 – Investing Internationally 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.

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