International Equity Markets

There are many real life examples related to concepts discussed in Module 11. Try to locate and share some examples from current news, historical events, or your own professional experience. For example, pick one of the following articles and discuss how they relate to the content of this module (remember that the articles are real-life illustrations of concepts covered on the module):

Chinese education ADRs reboundLinks to an external site. (WSJ, 2023)
Beijing regulator releases rules on overseas listingsLinks to an external site. (WSJ, 2023)
Index orphans miss out on BillionsLinks to an external site. (WSJ, 2023)
Mexico and Brazil defy the dollar’s strengthLinks to an external site. (WSJ, 2022)
Foreign investors yanked billions from China bondsLinks to an external site. (WSJ 2022)
Didi says bye-bye to NYSELinks to an external site. (WSJ, 2022)
Overseas stocks rise as China eases curbsLinks to an external site. (WSJ, 2022)
Japan loses appetite for US bondsLinks to an external site. (WSJ, 2022)

Chapter 13: International Equity Markets
Eun, C. S., Resnick, B. G., & Chuluun, T. (2024). International financial management (10th ed.). McGraw-Hill.
The most important sections are:
“Market Liquidity ” p. 362
“Trading in International Equities” pp. 367-376, except you can ignore the discussion on sponsored and unsponsored ADRs on p. 373
“Empirical Findings” on pp. 377-378
“International Equity Benchmarks” pp. 378-379, only to become familiar with MSCI indexes and iShares.
Chapter 15: International Portfolio Investment
Eun, C. S., Resnick, B. G., & Chuluun, T. (2024). International financial management (10th ed.). McGraw-Hill.
The most important sections are:
“International Correlation Structure and Risk Diversification” pp. 408-416
“Effects of Changes in the Exchange Rate” pp. 416-418
“International Diversification at Home” p. 421, especially mutual funds, country funds, ETFs, and ADRs.
“Home Bias” p. 427

Additionally, on the discussion board, you may want to describe, in your own words, the insights, doubts, queries, and serendipitous findings when presented with the content in this module and discuss how you came to understand the concept. This should not be undigested information copied from course materials or internet resources.

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Real-World Example: Chinese Education ADRs Rebound (International Equity Markets & International Portfolio Investment)

The provided article, “Chinese education ADRs rebound” (WSJ, 2023), connects directly to the concepts covered in Chapters 13 and 15 of Eun, Resnick, & Chuluun’s “International Financial Management” (10th edition). Here’s how it relates to the course material:

International Equity Markets (Chapter 13):

  • Market Liquidity: The article discusses the rebound of Chinese education ADRs. ADRs (American Depositary Receipts) represent shares of foreign companies traded on US exchanges. The rebound suggests increased liquidity in the market for these ADRs. Chapter 13 highlights market liquidity as a crucial factor for

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  • international equity markets, impacting investor participation and transaction costs.

  • Trading in International Equities: The article showcases trading activity in Chinese companies through ADRs. Chapter 13 explores various methods for trading international equities, including depositary receipts (like ADRs) which facilitate foreign company listings on domestic exchanges.

International Portfolio Investment (Chapter 15):

  • International Diversification: Chinese education ADRs offer investors exposure to the Chinese education sector. Chapter 15 emphasizes the benefits of international diversification for portfolio risk management. By investing in assets from different countries and sectors, investors can reduce overall portfolio risk compared to a purely domestic portfolio.

  • ADRs and Home Bias: ADRs can help overcome home bias, the tendency for investors to favor domestic investments. Chapter 15 discusses home bias as a potential hurdle to achieving optimal portfolio diversification. ADRs provide convenient access to foreign stocks, encouraging investment in international markets.

Insights and Understanding:

This article reinforces the importance of international equity markets and ADRs in facilitating investment in foreign companies. It highlights how these instruments can contribute to portfolio diversification, a key concept in international portfolio investment.

While the article doesn’t delve into specific details like correlations between Chinese and US markets (Chapter 15), it serves as a springboard for further analysis. Understanding how the performance of Chinese education ADRs correlates with the broader US market or other sectors can help investors make informed decisions about diversification strategies.

This example highlights the practical application of theoretical concepts from the course material. By following financial news and market trends, we can connect these concepts to real-world scenarios and gain deeper insights into international financial management.

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