© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected websitefor classroom use.International Investing Project(This exercise can also be found in Madura International Financial Management 10e, Appendix D.)Note to the Professor: You may want to assign this as a project to be completed by theend of the semester. This project helps students to understand the factors that influencethe performance of MNCs and foreign stocks. This project can also be done with teams ofstudents and may be used for class presentations near the end of the semester. If youallow students to share their results in class, the students will learn that relationshipscannot necessarily be generalized, as some MNCs are more exposed than others toeconomic conditions and exchange rate movements. The focus in grading this project willbe on the explanations provided by the students, not on the movements in the stock pricesor exchange rates.This project allows you to learn more about international investing and about firmsthat compete in the global arena. You will be asked to create a stock portfolio of at leasttwo U.S.-based multinational corporations (MNCs) and two foreign stocks. You willmonitor the performance of your portfolio over the school term and ultimately willattempt to explain why your portfolio performed well or poorly relative to the portfolioscreated by other students in your class. The explanations will offer insight on what isdriving the valuations of the U.S.-based MNCs and the foreign stocks over time.Select two stocks of U.S.-based MNCs that you want to include in your portfolio. Ifyou want to review a list of possible stocks or do not know the ticker symbol of thestocks you want to invest in, go to the website http://biz.yahoo.com/i/, which lists stocksalphabetically, or to http://biz.yahoo.com/p/, which lists stocks by sectors or industries.Make sure that your firms conduct a substantial amount of international business.Next, select two foreign stocks that are traded on U.S. stock exchanges and are notfrom the same foreign country. Many foreign stocks are traded on U.S. stock exchangesas American depository receipts (ADRs), which are certificates that represent ownershipof foreign stock. ADRs are denominated in dollars, but reflect the value of a foreignstock, so an increase in the value of the foreign currency can have a favorable effect onMadura International Financial Management 10e ? International Investing Project© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected websitefor classroom use.the ADRs value. To review a list of ADRs in which you may invest, go to www.adr.comand click on ADR Universe. Click on any industry listed to see a list of foreigncompanies within that industry that offer ADRs and the country where each foreigncompany is based. You should select ADRs of firms that are based in any of the countriesshown on the website http://finance.yahoo.com/intlindices . Click on any company listedto review background information, including a description of its business and its stockprice trend over the last year. It is assumed that you will invest $10,000 in each stock thatyou purchaseList your portfolio in the following format: U.S.-BASED MNCsNAME OFFIRMTICKERSYMBOLAMOUNT OF YOURINVESTMENTPRICE PER SHARE ATWHICH YOUPURCHASED THESTOCK$10,000$10,000 FOREIGN STOCKS (ADRs) NAME OFFIRMTICKERSYMBOLCOUNTRYWHERE FIRMIS BASEDAMOUNT OFYOURINVESTMENT$10,000PRICE PER SHAREOF ADR ATWHICH YOUPURCHASED THESTOCK$10,000 You can easily monitor your portfolio using various Internet tools. If you do not alreadyuse a specific website for this purpose, go to http://finance.yahoo.com/?u and register forfree. Follow the instructions, and in a few minutes you can create your own portfolioMadura International Financial Management 10e ? International Investing Project© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected websitefor classroom use.tracking system. This system not only updates the values of your stocks, but also providescharts and recent news and other information on the stocks in your portfolio.EvaluationAt the end of each month during the school term (or a date specified by your professor),you should evaluate the performance and behavior of your stocks.1. a. Determine the percentage increase or decrease in each of your stocks overthe period of your investment and pr
ovide that percentage in a table like the one below.In addition, offer the primary reason for this change in the stock price based on newsabout that stock or your own intuition. To review the recent news about each of yourstocks, click on http://finance.yahoo.com/?u and insert the ticker symbol for each firm.Recent news is provided at the bottom of the screen. NAME OF FIRMPERCENTAGE CHANGE INSTOCK PRICEPRIMARY REASON1.2.3.4.Portfolio (average) b. How does your portfolios performance compare to the portfolios of some otherstudents? (Your professor may survey the class on their performances so that you can seehow your performance differs from those of other students.) Why do you think yourperformance was relatively high or low compared to other students performances? Was itbecause of the markets where your firms do their business or because of firm-specificconditions?2. Determine whether the performance of each of your U.S.-based MNCs is drivenby the U.S. market. Go to the site http://finance.yahoo.com/?u and insert the symbol foryour stock. Once the quote is provided, click on Chart. Click on the box marked S&P(which represents the S&P 500 Index). Then, click on Compare and assess theMadura International Financial Management 10e ? International Investing Project© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected websitefor classroom use.relationship between the U.S. market index movements and the stocks price movements.Explain whether the stocks price movements appear to be driven by U.S. marketconditions. Repeat this task for each U.S.-based MNC in which you invested.3. a. Determine whether the performance of each of your foreign stocks isdriven by the corresponding market where the firm is based. First, go to the sitehttp://finance.yahoo.com/intlindices?u and look up the symbol for the country index ofconcern. For example, Brazils index is ^BVSP. Next, go to the sitehttp://finance.yahoo.com/?u and insert the symbol for your stock. Click on Chart; at thebottom of the chart, insert the corresponding market index symbol (make sure youinclude the ^ if it is part of the index symbol) in the box. Then, click on Compare andassess the relationship between the market index movements and the stocks pricemovements. Explain whether the stocks price movements appear to be driven by thelocal market conditions. Repeat this exercise for each foreign stock in which youinvested.b. Determine whether your foreign stock prices are highly correlated. Repeat theprocess described above, except insert the symbol representing one of the foreign stocksyou own in the box below the chart.c. Determine whether your foreign stocks performance is driven by the U.S. market(using the S&P 500 as a market proxy). Erase the symbol you typed into the box belowthe chart, and click on S&P just to the right.4. a. Review annual reports and news about each of your U.S.-based MNCs todetermine where it does most of its business and the foreign currency to which it is mostexposed. Determine whether your U.S.-based MNCs stock performance is influenced bythe exchange rate movements of the foreign currency (against the U.S. dollar) to which itis most exposed. Go to www.oanda.com and click on FXHistory. You can convert theforeign currency to which the MNC is highly exposed to U.S. dollars and determine theexchange rate movements over the period in which you invested in the stock. Provideyour assessment of the relationship between the currencys exchange rate movements andthe performance of the stock over the investment period. Attempt to explain therelationship that you just found.Madura International Financial Management 10e ? International Investing Project© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except foruse as permitted in a license distributed with a certain product or service or otherwise on a password-protected websitefor classroom use.b. Repeat the steps in 4a for each U.S.-based MNC in which you invested.5. a. Determine whether the stock performance of each of your foreign firms isinfluenced by the exchange rate movements of the firms local currency against the U.S.dollar. You can obtain this information from www.oanda.com. You can convert theforeign currency of concern to U.S. dollars and determine the exchange rate movementsover the period in which you invested in the stock. Provide your assessment of therelationship between the currencys exchange rate movements and the performance of thestock over the investment period. Attempt to explain the relationship that you just found.b. Repeat the steps in 5a for each of the foreign stocks in which you invested.