Introduction to the Stock Market Essay

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TORO UNIVERSITY INTERNATIONAL Module V Case Assignment FIN 504: INTRODUCTION TO THE STOCK MARKET Professor: 18 Feb 2014 INTRODUCTION Over the past few decades international (foreign) investing has evolved to become a highly sought market for security investors. Although recently it has been met with controversy regarding some of its risks, overall I believe that it not only provides investors an opportunity to implement an effective risk management strategy (diversification) for their investment portfolio, but it also offers them an opportunity to achieve substantial long-term growth for a secure financial future. With that being said, the purpose of this report will be to review the potential benefits of incorporating international securities within an investment portfolio. RISKS ASSOCIATED WITH FOREIGN INVESTING All forms of security investing are affected by economic risk factors. While, the primary factors that will negatively affect domestic investments are economic conditions, resulting from high levels of inflation and or unemployment; the primary factors that will negatively affect foreign investments are economic conditions that result from drastic changes in market values (currency exchange rates), political/economic instability, and inaccessibility to company’s information (International Investing, 2014). Accordingly, there are certain advantages and disadvantages to investing in international securities. Some of the disadvantages are as follows: • Changes in market value: given that foreign exchange rates can fluctuate, the security’s value, within the international markets, can also experience drastic fluctuations. None the less this risk be reduced by purchasing long term securities; they typically have the ability to weather the sharp increases or slumps that may occur within the market (id.). •

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