AMEU

SCHOOL OF GRADUATE STUDIES

EXECUTIVE MBA PROGRAM

International Financial Markets EMBF708

Sam Cleon

ID# 2020003

A synopsis of lecture series

Lecture series Primer III

Submitted to: Dr. Milton Nathanial Barnes

Date: August. 13, 2021

Primer III lecture series discussed mainly the fundamental dynamics of international
financial market, which is summarized in this document.

In the fundamental dynamics of IFM there are reasons for using IFM but also several
factors are withholding why the financial tools or assets cannot be completely
integrated.

Those factors include, tax differential, tariffs, quotas, labor immobility, cultural
differences, financial reporting differences, and essential costs of relating information
across countries. It shows or give uniqueness in countries market, in respect of its market
opportunities in its geographical makeup that attract investments.

The international financial market is for investment purpose for which there is/are one or
more reasons investors invest;

✓ Economic conditions, that is the expectation from investors of good

performance of firms in foreign countries to achieve than in their home countries.

✓ Exchange rate expectation, it’s the driver for many investors to go for securities in
foreign currency that tend to give the necessary appreciation they needed
against their own country’s currency, which is solely depended on the currency
movement.

✓ International diversification, in this term risk reduction is key, investors want to

have balance in minimizing risk so they invest their asset portfolios in several
countries that tend to provide favorable investment conditions and do not
depend mainly on a single country’s economy. This also help investors to engage
and spread out there fundings in other industries internationally.

✓ High foreign interest rates, when countries experience shortage in fund for loan
purposes they tend to have high interest rate even in considering risk. In these
economy conditions investors are interested to offer funds to the international
markets, so countries that have high foreign interest rate precisely experience
inflation. When countries have high inflation rates their local currency is
depreciated there weakening their economy over the period that condition.

✓ Exchange rate expectations, this comes to existence when investor see the need
to supply capital to countries or markets that tend to appreciate in currency
 against their own, irrespective of what transaction it is (securities purchase or
loan).

✓ International diversification, this factor creates the mind for investor to spread out
their portfolio internationally for the avoidance of bankruptcy, as this depends on
how a country’s economic condition is to effect this strategy.
✓ Low interest rates, the drive to this factor is the availability of sufficient funds in a
country, and this leads to lower rate of inflation. Borrowers attempt to take
advantage of these low interest rate.

✓ Exchange rate expectation, give the borrower the sense of depreciation if they
are to borrow funds in a foreign currency, in the period of pay back when the
currency loaned has an inflation rate, they stand the risk of exchange rate risk
which will increase the loan repayment amount.

The Understanding of risk and return.

✓ The sole intent for investment is to make profit, so investors stand the risk of
loosing on their investment decisions or gain more fund when they make the right
choice in their investment drive.

✓ In IFM “risk” is the uncertainty that investor do not know the outcome and make
the decision to invest. So, the chance a person takes to fund a business may
yield profit or earn less of what is actually expected.

✓ Risk tolerance in actual sense is what a person bears over time and this has
different measures from person to person. In the financial market lots of old age
investors do not want to take high and long risky investments due to their
retirement conditions, while younger and energetic investors will take longer
period or years in a very high-risk investment pool to see their outcome yield
gainfully.

✓ People in IFM refers to those who always want to have gains in every investment
they do, so for that they take less risk investments and savings to retain the
principal of their investment.

In furtherance of this lecture, we talked about the six types of risks and they are below;
✓ Interest rate risk, that rise and fall in interest on an investment some reason is that
uncertainty that one can’t stop due to future variables. When the interest
increases the principal value on the investment decrease whereas when the
interest decreases the interest rate fall automatically.

✓ Business failure risk is the ability that the business will better or meet a minimum
profit value or the business will yield nothing is the risk aspect.

✓ Market price risk, the factor or variable that the price of an investment will be
influence to fluctuate price is the risk component. There are some investors who
predict the rise and fall of market price from time to time.

✓ Inflation risk, is that the value of financial on an investment will forgo its buying or
purchasing strength owing to the fact that goods and services prices have
increase. The return on investment must reflect more than the inflation rate to
give the actual face value on the return.

✓ Political risk, when government in her jurisdiction takes action or lay restriction
(increase in taxes) on the trade of commodities from the negative form business
from making margin.

✓ Fraud risk, the deception and misleading aspect of investment designed by the
sellers who win in these cases and the investors turn victim.