One easy way to accomplish this goal is to purchase

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Unformatted text preview: r? b. Is a buyer of a bond a lender or borrower? Stocks Around the World In February 2005, 11,000 investors from 22 countries met at the World Money Show in Orlando, Florida, to get investment advice from advisers from around the world. In a global economy, as opposed to a national economy, investors set out to find the best return for their money—no matter where that may take them. One easy way to accomplish this goal is to purchase ADRs, which stands for American Depository Receipts. An ADR is certificate issued by a U.S. bank; the ADR represents a specified number of shares (or one share) in a foreign stock that is traded on a U.S. stock exchange. Envision a world where anyone can easily buy stock issued by any company in the world. In other words, it is as easy to buy stock issued by a company in your hometown as it is to buy stock issued by a company in Moscow. Why might it make more sense to sometimes buy a Brazilian or Italian stock instead of a U.S. stock? Would you predict that the rates of return for all stocks (around the world) would be the same? ECONOMIC THINKING funds that they would like to invest. As a result, society ends up with more goods and services than otherwise would be the case. 3. If the face value of a bond is $10,000 and the annual coupon payment is $600, then what is the coupon rate? 4. If the annual coupon payment is $500 and the price paid for the bond is $9,544, then what is the yield? Critical Thinking 5. “If you can predict interest rates, then you can earn a fortune buying and selling bonds.” Do you agree or disagree? Explain your answer. Applying Economic Concepts 6. Why might a person purchase an inflationindexed Treasury bond? Section 2 Bonds 449 16 (428-459) EMC Chap 16 5/8/06 5:11 PM Page 450 Focus Questions What is a futures contract? Why do people enter into futures contracts? What is a currency futures contract? What is an options contract? What is a put option? What is a call option? What is the major reason that an investor would decide to make use of eith...
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This document was uploaded on 01/16/2014.

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