Critically examine the risks faced by investors in international equities and give examples of how these risks are present in the investing activities of individuals before crises as opposed to after.
Critically examine the risks faced by investors in international equities and give examples of how these risks are present in the investing activities of individuals before crises as opposed to after.
The risk that would be faced by investors in international equities are:
High transaction cost
One of the barriers to investing in international equities is a high amount of transaction costs. As in the international market, transaction costs are higher as compared to the domestic market and there are others such as taxes, stamp duties, and exchange fees.
Liquidity risk
It is a risk involved if one is unable to sell off the stock fast once a sale order is made and there is no way for an investor for protecting themselves such risk. Hence, investors should focus on foreign investments that can become, illiquid with the passage of when investors want to shut its position.
Currency volatility
Uncertain movement or change in foreign rates of exchange in the foreign exchange of the global market. It is the risk of what will be the future exchange rate which scares the investors. Volatility in a currency can be caused due to a number of factors such as inflation levels, export levels, interest rates, monetary policy, and also other factors.
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