International Business Finance
The objective of this project is to help students understand the factors that influence the performance of MNCs and foreign stocks.
Each team will create a stock portfolio of two US-based multinational corporations (MNCs) and two foreign stocks. Students will monitor the performance of their portfolio over the semester and explain why the portfolio performed well or poorly relative to the portfolios created by other students in the class. The explanations will offer insight on what is driving the valuations of the US-based MNCs and the foreign stocks over time.
To get started: form your research team on the first day of class and select two stocks of US-based MNCs that you want to include in your portfolio. If you want to review a list of possible stocks or do not know the ticker symbol of the stock you want to invest in, go to the website http://biz.yahoo.com/i/ , which lists stocks alphabetically, 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 trade on US stock exchanges and are not from the same foreign country. Many foreign stocks trade on US stock exchanges as American Depository Receipts (ADRs), which are certificates that represent ownership of foreign stock. ADRs are denominated in dollars, but reflect the value of a foreign stock, so an increase in the value of the foreign currency can have a favorable effect on the ADR’s value. To review a list of ADRs in which you may invest, go to http://www.adr.com/entry_disclaimer.html. Go to the website and click on ADR Universe. Click on any industry listed to see a list of foreign companies within that industry that offer ADRs and the country where each foreign company is based. You can select ADRs of firms based in any of the countries shown on the website http://finance.yahoo.com/intlindices. Click on any company listed to review background information, including a description of its business and its stock price trend over the last year. It is assumed that you will invest $10,000 in each stock that you purchase (this means $40,000 in total).
List your portfolio in the following format:
Basis on TEAM #16
|US Based MNCs|
|Name of Firm||Ticker Symbol||Number of Shares Purchased||Price per Share at Which You Purchased the Stock|
|Foreign Stocks (ADRs)|
|Name of Firm||Ticker Symbol||Country of Incorporation||Number of Shares Purchased||Price per Share at Which You Purchased the Stock|
|Agnico-Eagle Mines Limited||AEM||Canada||256||$38.99|
You can easily monitor your portfolio using various Internet tools. If you do not already use a specific website for this purpose, I recommend you use yahoo finance, go to http://finance.yahoo.com/?u to register for free. Follow the instructions to create your own portfolio tracking system. This system not only updates the values of your stocks, but also provides charts, recent news, and other information on the stocks in your portfolio.
Your progress reports should have the following information:
1. Return Calculation: Determine the percentage increase or decrease in each of your stocks over the period of your investment (portfolio formation date is January 22nd, 2019) and provide that percentage in a table like the one below.
|Name of Firm||Beginning Price||Ending Price||Dividend||Holding Period Return (EAR)|
|Portfolio (value weighted)|
2. Reason for the change in each of the stocks’ price based on news about that stock. To review the recent news about each of your stocks, click on http://finance.yahoo.com/?u and insert the ticker symbol for each firm. Recent news will appear at the bottom of the screen.
3. Relative Performance Analysis: How does your portfolio’s performance compare to the portfolios of the other students? You will be informed of the composition of your peer’s portfolios on January 24th. Why do you think your portfolio performance was relatively high or low compared to other teams?
4. Determine the correlation coefficients of the stock returns in your portfolio. Compute the variance-covariance matrix of the daily returns of the four stocks in your portfolio. Explain which stocks are highly correlated with one another and which stocks are not.
5. Determine whether the performance of each of your US-based MNCs is driven by the US market. Go to the site http://finance.yahoo.com/?u and insert the symbol for your 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 the relationship between the US market index movements and the stock’s price movements. Include the graph and brief explanation in your report.
6. Determine whether the performance of each of your foreign stocks is driven by the corresponding market where the firm is based. First, go to the site http://finance.yahoo.com/?u and insert the symbol for your stock. Click on Chart; at the bottom of the chart, insert the corresponding market index symbol (make sure you include the ^ if it is part of the index symbol) in the box. Then, click on Compare and graphically assess the relationship between the market index movements and the stock’s price movements. Explain whether the stock’s price movements appear to be driven by the local market conditions. Repeat the analysis for each foreign stock in your portfolio.
7. Determine whether your foreign stock’s performance is driven by the US market (using the S&P 500 as a market proxy). Erase the symbol you typed into the box below the chart, and click on S&P just to the right.
8. Review annual reports and news about each of your US-based MNCs to determine their most important markets and the foreign currencies to which they are most exposed. Determine whether your US-stock returns are influenced by the movements of the foreign currency (against the US dollar) to which it is most exposed. Go to http://www.oanda.com and click on FX History. You can convert the foreign currency to which the MNC is highly exposed to US dollars and determine the exchange rate movements over the period in which you invested in the stock.
9. Determine whether the stock performance of each of your foreign firms is influenced by the movements of the firm’s local currency against the US dollar. You can obtain exchange rates from http://www.oanda.com over the period in which you invested in the stock. Provide your assessment of the relationship between the currency’s exchange rate movements and the performance of the stock over the investment period.
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Determine the percentage increase or decrease in each of your stocks over the period of your investment was first posted on July 16, 2019 at 1:45 pm.
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