Alternative investments that are available to the public on the high street, national savings bonds and also through fixed term investment offered by banks and building societies, arent as significant an aspect of investing in the United States as they are in the U.K. This has to do with the minimal influence the individual investor has on the U.K market in comparison with that of the U.S. and the volatility and beta risk this introduces to the red and green line of respective corporations.
Question No 1 What are the different markets (apart from stock) available for investing in to an individual investor in the UK domestically
The term beta in investing refers to the measure of risk a particular stock implies against the market. Beta exists within the invest meant of the Bonds and Foreign Exchange markets but this risk is considered, especially by U.K. investors to be much more minimal in these alternative markets than it would be in just traditionally trading stocks.
The Foreign Exchange Market is considered to be the most liquid market in the world. The Bank for International Settlements reported the FOREX as having a daily turnover rate of 3.2 trillion in April 2007. Of this London trading accounted for 34.1 (1.36 trillion), New York trading made up 16.6 and Tokyo made up 6. One risk of the FOREX market can be seen in the fact that in 2007 2.1 trillion of the 3.98 trillion traded was done so in derivatives.
Foreign-Exchange Risk is dually faceted in the sense that it affects businesses as well as investors in that both parties must consider the fact that currency exchange rates effect the value of assets. Business that export and import tend to have monies that must be converted to another currency to make certain investments, which in turn are subject to the influence of the currency exchange rate when that investment is sold and the investment value is either decreased or increased when the investment is converted back to its original rate of currency. Foreign-exchange risk applies to any financial instrument that is in a currency other than a domestic currency.Long term and short term investing ins the foreign exchange market tends to center on the trading of futures. The two main types of traders who deal with futures are speculators and hedgers. While The foreign exchange market represents a volatile option for investors, Beta is estimates for individual companies through the use of regression analysis against a stock market index propose that it could be a more viable option than the stock market if handled appropriately in in short term investing.. Regression analysis is used for predicting and forecasting. For long term investing U.K. investors also have the option of investing in Bonds.
The Bond Market is also referred to as the fixed income, or credit debt market. It is a market where individual particapants can sell debt securities in the form of bonds. As noted by AFME, the U.K. is rising in the bonds market where the United States is in a decline. US now account for less than half about 44--of the global bond market volume. In Europe, bonds are about 23 of the total amount of securities outstanding in bonds and shares(AMFE, 2009). The report goes on to note that the U.S. bond market composes less of the overall securities shared in the U.S. is about the same size.
A major reason why bonds are a trusted alternative market for investment in Europe has to do with the differing nature in the investors involved. Bond markets in Europe, like those in the U.S., are open to both individuals as well as institutional investors, but institutional investors make up the bulk of these investments. The majority of bond market participants in Europe are institutional investors, such as pension funds, insurance companies and banks (AMFE, 2009). Institutions are less volatile than individuals providing the invesotrs with more faith in their future and daily stability.
Question No 2 Why the investors think stock markets are more risky then the markets identified in question1
The FOREX market has introduced itself as a hot new alternative to the Stock Market and Bonds have demonstrated their capacity to survive in times of recession, and bullish markets, but the main reason why investors have lost faith in the stock market has to do with dirty dealers by brokers, such as short selling and credit default swaps by lenders. These are practices that can be carried out in alternative markets.
Short selling and its effect on the market work in a more underhanded manner. The main reason why it is viewed as underhanded is because it is a trading method that works counter to the initial goal of trading which is to find the best stock to buy, and instead is recognized as the act of finding the best stock to sell. Traders who short sell basically sell stocks they dont own in the belief that once the stock falls, they will be able to buy the stock in the future and make off with the profits. They then return the shares to the original owner.
The specific way it works is that if a stock falls the way a trader predicts, they can buy shares of the stock at a lower cost and then replace the borrowed shares they sold to bring the stock down in the first place. You short 300 shares at 45 per share. Your broker deposits 13,500 in your account. Two weeks later, the price has fallen to 35 per share. You instruct your broker to cover your short or buy 300 shares to replace those you sold (Teak, p1, 2007). The risk of short selling is that if the price of a stock rises the investors lose money. If there are a large number of short sellers trying to cover their position in a stock it also has the effect of driving the stock up, which reveals the volatility of the stock market as an investment option.Likewise Credit Default Swap Contracts (CDS) setup by lenders like JP.Morgan have made the Stock Market an eerie place to invest.
In a CDS contract, credit risk from emerging market bonds, mortgage-backed securities, municipal bonds or corporate debt is transferred between two parties. It is a bilateral contract because both parties are obligated to carryout their end of the contract. CDS contracts were designed because as Stephan Teak puts it in his article Did Credit Default Swaps Cause the Financial Market Meltdown he goes on to say, When a lender provides financing in the form of a loan, it has to keep a certain amount of cash, called capital, on hand to cover any problems with the loans such as defaults. For larger financial institutions like JP Morgan, this meant having huge amounts of money tied up and doing nothing. The credit default swap was designed to solve this problem (Teak, p1). The basic goal of the credit default swap is to free up the unused safety-net capital by selling off the risk of the loan to a third party for a premium. Once the capital was freed-up it would be available for use to provide another loan. When one of these corporations begins to falter their funds are all tied up in these credit default swaps and they dont have enough liquidity to stay grounded. This leads to major corporations becoming weak, and unstable investments.
In light of all this, in the U.K. bonds are now becoming the altrantive iption for investors. AMFE notes that, In comparison in the US, individual holdings of bonds amount to circa 6.9 of total financial holdings (AMFE, 2009). They go on to point out that, this figures is nearly 30 in the U.K. basically due to the individual investors faith in institutions verse that of free capital markets. This is an aspect of investing that is lacking in the United States.
Question No 3 How does the economic and political factors affect the risk profile of investment opportunities
The PwC Advisory published by Eurasia Group on Political risk assessment recognizes four main trends multinational businesses face today that effect liquidity and the perceived security of certain investments, and ultimately the way people invest. The Eurasia Groups points out that with the dawn of globalization, these four factors effecting the global. investment market, increasing political risk and impacting business performance are Interconnection of financial markets, Increased reliance on offshoring Increased reliance on offshoring, Deteriorating national security, and Energy dependence. The corporations goes on to point out how advancements in globalization has led any major company that has an influences in the stock market to easily be swayed by the varying factors posed by other markets throughout the globe. This is the main Beta risk introduced to the market by those multinational corporations that have established themselves as too big to fail.
According to the CIA World Factbook, the United States of America has the largest economy in the world, as noted, The recent failure in the U.S. housing and credit markets have resulted in a slowdown in the US economy. 2007 GDP growth was estimated at 2.2 but in 2008 it is projected to be just 0.9, down from the 10-year average of 2.8 (St Labs, 2009 p1). The result of this, as The United States Department of Labor notes is that as of September 2009, the unemployment rate was 9.8, which is the result of a progressive growth of 8.9 in April 2009. All of this inspired University of Maryland economist Peter Morici to declarewe are in a depression (Shinkle, 2009 p1).
He defines a recession as an economic decline from which an economy can eventually recover, but poses that the state the American economy is in today is much worse and cant be resolved with a quick fix. My feeling is that . . . if (the president) doesnt fix whats structurally broken, what caused this, well be back into this after the federal stimulus has had its effect, says Morici (Shinkle, 2009 p1).What Shrinkle points out as a vulnerability that mortgage lenders revealed to be a major risk within the real-estate market was the use of credit default swaps. Credit default swap contracts were introduced to the NYSE in 1997 by JP Morgan and it is noted by Waybe Pinsent as whats responsible for market ballooning up to a 45 trillion value in 2007 (Pinsent, 2009 p1).
Question No 1 What are the different markets (apart from stock) available for investing in to an individual investor in the UK domestically
The term beta in investing refers to the measure of risk a particular stock implies against the market. Beta exists within the invest meant of the Bonds and Foreign Exchange markets but this risk is considered, especially by U.K. investors to be much more minimal in these alternative markets than it would be in just traditionally trading stocks.
The Foreign Exchange Market is considered to be the most liquid market in the world. The Bank for International Settlements reported the FOREX as having a daily turnover rate of 3.2 trillion in April 2007. Of this London trading accounted for 34.1 (1.36 trillion), New York trading made up 16.6 and Tokyo made up 6. One risk of the FOREX market can be seen in the fact that in 2007 2.1 trillion of the 3.98 trillion traded was done so in derivatives.
Foreign-Exchange Risk is dually faceted in the sense that it affects businesses as well as investors in that both parties must consider the fact that currency exchange rates effect the value of assets. Business that export and import tend to have monies that must be converted to another currency to make certain investments, which in turn are subject to the influence of the currency exchange rate when that investment is sold and the investment value is either decreased or increased when the investment is converted back to its original rate of currency. Foreign-exchange risk applies to any financial instrument that is in a currency other than a domestic currency.Long term and short term investing ins the foreign exchange market tends to center on the trading of futures. The two main types of traders who deal with futures are speculators and hedgers. While The foreign exchange market represents a volatile option for investors, Beta is estimates for individual companies through the use of regression analysis against a stock market index propose that it could be a more viable option than the stock market if handled appropriately in in short term investing.. Regression analysis is used for predicting and forecasting. For long term investing U.K. investors also have the option of investing in Bonds.
The Bond Market is also referred to as the fixed income, or credit debt market. It is a market where individual particapants can sell debt securities in the form of bonds. As noted by AFME, the U.K. is rising in the bonds market where the United States is in a decline. US now account for less than half about 44--of the global bond market volume. In Europe, bonds are about 23 of the total amount of securities outstanding in bonds and shares(AMFE, 2009). The report goes on to note that the U.S. bond market composes less of the overall securities shared in the U.S. is about the same size.
A major reason why bonds are a trusted alternative market for investment in Europe has to do with the differing nature in the investors involved. Bond markets in Europe, like those in the U.S., are open to both individuals as well as institutional investors, but institutional investors make up the bulk of these investments. The majority of bond market participants in Europe are institutional investors, such as pension funds, insurance companies and banks (AMFE, 2009). Institutions are less volatile than individuals providing the invesotrs with more faith in their future and daily stability.
Question No 2 Why the investors think stock markets are more risky then the markets identified in question1
The FOREX market has introduced itself as a hot new alternative to the Stock Market and Bonds have demonstrated their capacity to survive in times of recession, and bullish markets, but the main reason why investors have lost faith in the stock market has to do with dirty dealers by brokers, such as short selling and credit default swaps by lenders. These are practices that can be carried out in alternative markets.
Short selling and its effect on the market work in a more underhanded manner. The main reason why it is viewed as underhanded is because it is a trading method that works counter to the initial goal of trading which is to find the best stock to buy, and instead is recognized as the act of finding the best stock to sell. Traders who short sell basically sell stocks they dont own in the belief that once the stock falls, they will be able to buy the stock in the future and make off with the profits. They then return the shares to the original owner.
The specific way it works is that if a stock falls the way a trader predicts, they can buy shares of the stock at a lower cost and then replace the borrowed shares they sold to bring the stock down in the first place. You short 300 shares at 45 per share. Your broker deposits 13,500 in your account. Two weeks later, the price has fallen to 35 per share. You instruct your broker to cover your short or buy 300 shares to replace those you sold (Teak, p1, 2007). The risk of short selling is that if the price of a stock rises the investors lose money. If there are a large number of short sellers trying to cover their position in a stock it also has the effect of driving the stock up, which reveals the volatility of the stock market as an investment option.Likewise Credit Default Swap Contracts (CDS) setup by lenders like JP.Morgan have made the Stock Market an eerie place to invest.
In a CDS contract, credit risk from emerging market bonds, mortgage-backed securities, municipal bonds or corporate debt is transferred between two parties. It is a bilateral contract because both parties are obligated to carryout their end of the contract. CDS contracts were designed because as Stephan Teak puts it in his article Did Credit Default Swaps Cause the Financial Market Meltdown he goes on to say, When a lender provides financing in the form of a loan, it has to keep a certain amount of cash, called capital, on hand to cover any problems with the loans such as defaults. For larger financial institutions like JP Morgan, this meant having huge amounts of money tied up and doing nothing. The credit default swap was designed to solve this problem (Teak, p1). The basic goal of the credit default swap is to free up the unused safety-net capital by selling off the risk of the loan to a third party for a premium. Once the capital was freed-up it would be available for use to provide another loan. When one of these corporations begins to falter their funds are all tied up in these credit default swaps and they dont have enough liquidity to stay grounded. This leads to major corporations becoming weak, and unstable investments.
In light of all this, in the U.K. bonds are now becoming the altrantive iption for investors. AMFE notes that, In comparison in the US, individual holdings of bonds amount to circa 6.9 of total financial holdings (AMFE, 2009). They go on to point out that, this figures is nearly 30 in the U.K. basically due to the individual investors faith in institutions verse that of free capital markets. This is an aspect of investing that is lacking in the United States.
Question No 3 How does the economic and political factors affect the risk profile of investment opportunities
The PwC Advisory published by Eurasia Group on Political risk assessment recognizes four main trends multinational businesses face today that effect liquidity and the perceived security of certain investments, and ultimately the way people invest. The Eurasia Groups points out that with the dawn of globalization, these four factors effecting the global. investment market, increasing political risk and impacting business performance are Interconnection of financial markets, Increased reliance on offshoring Increased reliance on offshoring, Deteriorating national security, and Energy dependence. The corporations goes on to point out how advancements in globalization has led any major company that has an influences in the stock market to easily be swayed by the varying factors posed by other markets throughout the globe. This is the main Beta risk introduced to the market by those multinational corporations that have established themselves as too big to fail.
According to the CIA World Factbook, the United States of America has the largest economy in the world, as noted, The recent failure in the U.S. housing and credit markets have resulted in a slowdown in the US economy. 2007 GDP growth was estimated at 2.2 but in 2008 it is projected to be just 0.9, down from the 10-year average of 2.8 (St Labs, 2009 p1). The result of this, as The United States Department of Labor notes is that as of September 2009, the unemployment rate was 9.8, which is the result of a progressive growth of 8.9 in April 2009. All of this inspired University of Maryland economist Peter Morici to declarewe are in a depression (Shinkle, 2009 p1).
He defines a recession as an economic decline from which an economy can eventually recover, but poses that the state the American economy is in today is much worse and cant be resolved with a quick fix. My feeling is that . . . if (the president) doesnt fix whats structurally broken, what caused this, well be back into this after the federal stimulus has had its effect, says Morici (Shinkle, 2009 p1).What Shrinkle points out as a vulnerability that mortgage lenders revealed to be a major risk within the real-estate market was the use of credit default swaps. Credit default swap contracts were introduced to the NYSE in 1997 by JP Morgan and it is noted by Waybe Pinsent as whats responsible for market ballooning up to a 45 trillion value in 2007 (Pinsent, 2009 p1).
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