Ch12_Kim_BKM_INV_7th - Bodie Kane Marcus Essentials of...

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Essentials of Investments Bodie • Kane • Marcus Chapter 12 Macroeconomic and Industry Analysis
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Essentials of Investments Bodie • Kane • Marcus Fundamental Analysis The analysis of determinants of firm value, such as prospects for earnings and dividends. Approach to Fundamental Analysis (Top-Down Analysis) Global economic analysis Domestic economic analysis Industry analysis Company analysis Framework of Analysis
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Essentials of Investments Bodie • Kane • Marcus Global Economic Considerations Considerable variation in the economic performance across countries and regions at any time. Political risk Global investment presents far greater political risks than US-based investment. Political developments: NAFTA, Transfer of governance of Hong Kong to China, Asian Crisis. Protectionism, Trade policy, Free flow of capital, Status of a nation’s workforce. Exchange rate risk International competitiveness of a country’s industries. As exchange rates fluctuate, the dollar value of goods priced in foreign currency fluctuates.
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Essentials of Investments Bodie • Kane • Marcus Political Risk: Potential losses resulting from adverse political developments in the foreign country. Exchange Rate Risk: Potential losses resulting from adverse movements in exchange rate. The appreciation of US dollars will hurt the US firms that export goods and services. Suppose FORD exports TAURUS to Korea; TAURUS export price in US dollars - $15,000; The US dollar appreciates from (Won 1,000/ US dollar) to (Won 2,000/ US dollar). TAURUS price in Korea increases from Won 15,000,000 to Won 30,000,000 More expensive in Korean currency Less Demand Less Export The appreciation of US dollars will hurt the US investors who invest in foreign stocks. Suppose a US investor can have the return of Won 2 million from investment in Korean stocks. Exchange rate (Won 1,000/ US dollar) $2,000 Exchange rate (Won 2,000/ US dollar) $1,000
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Essentials of Investments Bodie • Kane • Marcus Domestic Economic Considerations The importance of the macroeconomy analysis The level of broad stock market and aggregate earnings do trend together. The first step in forecasting the performance of the broad market is to assess the status of the economy as a whole. Gross domestic product Measure of the economy’s total production of goods and services. Industrial Production: Measure of economic activity more narrowly focused on the manufacturing side. Unemployment rates Measure of the degree of economy’s operating capacity. Capacity utilization rate: Ratio of actual output from factories to potential output.
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Essentials of Investments Bodie • Kane • Marcus S&P 500 vs. EPS Estimate
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Essentials of Investments Bodie • Kane • Marcus Domestic Economic Considerations Inflation Measure of the rise in general level of prices. High inflation is associated with “overheated” economy.
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This note was uploaded on 12/13/2011 for the course MANAGEMENT 103 taught by Professor Mr.singh during the Spring '11 term at Aristotle University of Thessaloniki.

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Ch12_Kim_BKM_INV_7th - Bodie Kane Marcus Essentials of...

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