Question

Discuss the following ongoing trends as they relate to the field of investments: globalization, financial engineering, securization and computer network.

Cite specific examples.

Answer 1

Globalization provides a wide range of investment opportunities than that would be available to investors who could only choose domestic securities. As efficient technologies(communications and internet) has become available, globalization of markets has been significantly improved. There are many mechanisms by which one country's investors can hold foreign companies' securities. Some examples are American depositary receipt(ADRs), World Equity Benchmark Series(WEBS) and direct purchase of foreign securities.

An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U.S. bank. The foreign shares are usually held in custody overseas, but the certificates trade in the U.S. Through this system, a large number of foreign-based companies are actively traded on one of the three major U.S. equity markets.

The MSCI All Country World Index Ex-U.S. is an example of WEBS in which it includes both developed and emerging markets.

Securitization refers to accumulating the underlying financial assets, such as mortgages, into pools and then offering a security that represents a claim on these underlying assets.

Examples are GNMAs. Securitization allows investors to hold partial ownership in financial assets that would otherwise be beyond their reach.

Financial engineering involves bundling or unbundling.

Bundling involves combining separate securities together into a composite security. Examples are combining primitive and derivative securities, and combining three primitive securities such as common stock, preferred stock, and bonds.

Practical example is buying a stock and a put option.

Unbundling is the opposite to bundling. Here two or more security classes are created by separating a composite security into parts.

Computer networks have provided with online trading, online information dissemination and automated trade crossing. Each of these major breakthroughs has significant implications for investments. We might all know about these innovations in trading. As there are many online platforms where we can trade and sell.

Many companies public informations are available via online platform. So that we can take an informed decision for investing.