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Investment opportunities are not limited to domestic sources. The international markets are represented by economies outside of the domestic markets. Investing in the global markets would include both the international and domestic markets, but the international markets excludes national opportunities by many standards. It extends to both the stock and bond markets of international economies. If an investor in the United States chooses to place money with an asset manager in Asia who focuses on investment opportunities there and across Europe, for instance, the investor is gaining exposure to international markets.
There are different ways that one can invest in the international markets. One of these strategies is investing in foreign currencies, or in the monetary system of another country. This investment strategy is encouraged when the currency in the domestic markets is beginning to show signs of weakness and inflation. Currency trading involves purchasing debt or bonds issued by another country's government.
Another way for an investor to gain exposure to the international currency markets is through currency exchange-traded funds (ETFs). These index funds trade like stocks in the financial markets. ETFs are assigned a trading symbol and gain and lose value similar to an individual stock. These investments, however, can exhibit volatility or extreme gains and losses because the strength of currency can change on a whim. Through a foreign currency ETF, investors gain access to the underlying currency in another nation and subsequently to the international markets.
A subset of the international markets includes the emerging markets. These economies represent developing economies as opposed to already-developed markets. In early part of the 21st century, some of the common emerging markets included Brazil, Russia, India and China. Investing in emerging markets is one way of introducing diversification into a portfolio. It is a strategy often applied by some of the world's largest investors, including financial institutions, pension funds and endowments.
Developing nations pose more of a risk versus already developed economies because there is less economic and trading history there. Also, some of the most nascent markets have unstable political regimes in place, which can influence the stability of the nation's economic markets. So with the promise of potential growth and lucrative returns, investors also are taking on additional risk, which is why only a portion of a total investment portfolio usually is directed there. These investments become increasingly attractive when domestic investments are under-performing or an investor such as a pension fund needs to generate sizable returns to meet funding obligations.
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