Module 1: Case Analysis

1) Explain why an individual investor might want to invest in an international growth fund?
a. There are two basic reasons why an individual want to invest in an international
growth fund
i. Diversification: spreading investment risk among foreign companies and
markets that are different than the United states economy can allow the
individual to have lower risk if they just invest in the United Sates.
ii. Growth: taking advantage of potential for growth in some foreign
economies, specially in emerging markets
2) Describe the risks associated with making an investment in an international growth
fund. Identify the risks that would be common to domestic and international funds, and
those risks that would be unique to international funds.
a. Common risks between domestic and international funds
i. Exchange rates: when exchange rate between the foreign currency of an
international investment and the United states dollar changes, it can
increase or reduce your investment.
ii. Financial Advisory Risk: a risk an advisor will mislead you into making
poor choice in funds to invest in.
iii. Investment Style: an area of risk that can be avoided, but can also be a
safe way to invest your money. Some stocks can yield high returns.
b. International Fund Risk:
i. Natural Cases: in the country in which you are investing has a disaster:
financial distress, political disagreement, and natural disaster. Although
most countries can return from these events, there will be situation
where the investment will be lost because of the lost because of
unavailability of the fund.
ii. Currency Risk: this is a common risk when investing in a foreign county
because the value of the currency may be different. In times of distress
the value of the currency can decrease or increase between the value of
the fund currency.
3) Discuss how the fact that foreign company is not subject to the same accounting,
auditing, and financial reporting standards and practices as U.S. companies.
a. Foreign companies are not following the U.S. G.A.A.P., there can be significant
differences in the way the funds are reported. In other words, most countries are
following I.F.R.S. which has some similarities to G.A.A.P, as well as some
difference.
IFRS U.S. GAAP
Classification of deferred Non-current Current or non-current
Taxes based on underlying
assets or liability
Convertible Amount are split Recognized as a liabilty
between debt and
equity