British Telecomm
British Telecommunications
Case Study
Foreign Equities Valuation
U.S. investors should value foreign equities as a way to diversity their portfolios and reduce risk. Since foreign markets and U.S. markets do not correlate exactly it is likely that if U.S. markets are to perform poorly then foreign markets are likely to be performing better, and vice versa. Thus an investor that has a well-diversified portfolio is more likely to obtain a better combination of risk and return than another investor who does not diversify in foreign equities.
In the U.S. most foreign equities are traded in the form of ADRs, American Depository Receipts. ADRs are stocks that trade in the United States but represent a specific number of shares in a foreign corporation, typically one. In order for a foreign company to sell an ADR they must divulge certain financial data to the SEC to meet their requirements. These financial data fillings can be used by investors and analysts to help value and assess foreign companies on an individual basis. Another benefit for U.S. investors of ADRs is that they save money by reducing foreign administrative costs and avoiding foreign taxes on each transaction.
Equity Underwriting Risk
The major issue with underwriting risks of equities from the banks side is that the lead-syndicating bank is responsible for all of the new issue shares. So there are various ways they attempt to limit this risk. The most popular technique is undervaluing the initial public offering to attract more investors. Another tool lead-syndicating banks use is to have institutional investors sub-underwrite the shares, meaning that these institutional investors then become responsible for selling the shares they are allocated. In return for taking on some of this risk institutions retain a portion of the underwriting spread.
In additional to the risks stated above every country’s stock exchange(s) have their own rules for issuing new stock to the public and what
Case Study
Foreign Equities Valuation
U.S. investors should value foreign equities as a way to diversity their portfolios and reduce risk. Since foreign markets and U.S. markets do not correlate exactly it is likely that if U.S. markets are to perform poorly then foreign markets are likely to be performing better, and vice versa. Thus an investor that has a well-diversified portfolio is more likely to obtain a better combination of risk and return than another investor who does not diversify in foreign equities.
In the U.S. most foreign equities are traded in the form of ADRs, American Depository Receipts. ADRs are stocks that trade in the United States but represent a specific number of shares in a foreign corporation, typically one. In order for a foreign company to sell an ADR they must divulge certain financial data to the SEC to meet their requirements. These financial data fillings can be used by investors and analysts to help value and assess foreign companies on an individual basis. Another benefit for U.S. investors of ADRs is that they save money by reducing foreign administrative costs and avoiding foreign taxes on each transaction.
Equity Underwriting Risk
The major issue with underwriting risks of equities from the banks side is that the lead-syndicating bank is responsible for all of the new issue shares. So there are various ways they attempt to limit this risk. The most popular technique is undervaluing the initial public offering to attract more investors. Another tool lead-syndicating banks use is to have institutional investors sub-underwrite the shares, meaning that these institutional investors then become responsible for selling the shares they are allocated. In return for taking on some of this risk institutions retain a portion of the underwriting spread.
In additional to the risks stated above every country’s stock exchange(s) have their own rules for issuing new stock to the public and what