LESSON 19
INVESTING INTERNATIONALLY
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.1
LESSON 19 – INVESTING INTERNATIONALLY
The Benefits and Costs of Investing Internationally
• Benefits
• Costs
■ Diversification: Investors can
spread risk by owning stocks
or bonds of foreign businesses
■ Currency risk: Exchange-rate
changes may mean losses or
gains
■ Growth: Some foreign
businesses may be growing
faster than domestic
businesses; this may be
especially true for emerging
markets
■ 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.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.2
LESSON 19 – INVESTING INTERNATIONALLY
International Revenue for Selected
U.S. Companies
Company Name
Description
2010 Revenues
2010 percentage of
revenues from
international
markets
Coca-Cola
Soft Drinks
$35 Billion
75%
McDonald’s
Fast Food
$24 Billion
60%
Pfizer
Pharmaceuticals
$43 Billion
55%
Procter & Gamble
Consumer Products
$79 Billion
32%
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.3
LESSON 19 – INVESTING INTERNATIONALLY
Exchange Rate Examples
• Converting dollars to yen
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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
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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
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
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
LEARNING, EARNING, AND INVESTING
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• 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.
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.5
LESSON 19 – INVESTING INTERNATIONALLY
Exchange Rate Changes
• Dollar appreciates
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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
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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”)
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.5
LESSON 19 – INVESTING INTERNATIONALLY
Strong Dollar Impact
• Who is helped by a
strong dollar?
• Who is hurt 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.
LEARNING, EARNING, AND INVESTING
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■ U.S. producers: they are
competing with lowerpriced 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.
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 19.6
LESSON 19 – INVESTING INTERNATIONALLY
Weak Dollar Impact
• Who is helped by a weak • Who is hurt by a weak
dollar?
dollar?
■ U.S. producers: they are
competing with higherpriced 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.
LEARNING, EARNING, AND INVESTING
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■ 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.
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY