Online trading now make it possible to buy almost any stock in the world, twenty-four hours a day. Web-based brokers such as E*Trade Group allow Swedish investor to buy U.S stocks online and pay for the investments in Swedish krones. Online traders now allow clients to buy shares any country in the world, in almost any currency they choose.
As foreign markets expand their role in the world economy, investors have begun to expand their portfolios as well. Someone in one part of the world can go on the Web and buy shares in foreign markets with little more efforts than it takes to buy shares at home.
One way to buy foreign shares is to use broker-online or the old fashioned way, via the telephone. In this way, an investor can buy Club Med shares in France or Toyota shares in Tokyo, and then have the shares deposited in a local brokerage account. In most cases, however, the foreign share’s price will be quoted in the foreign currency, and the dividends, if there are any, will not be in the investor’s home currency either.
To avoid these inconveniences, many companies have their shares listed as stock certificates on various exchanges around the world. In North America, these are called American Depositary Receipts. ADRs are created by banks that buy shares of a foreign company and place them on deposit in the United States.
These foreign stock certificates give the holder the rights to the underlying value share. When the foreign share changes it value, the stock certificates changes its value as well. In this way, the buyer of ADR for Toyota does not have to keep track of the yen price of the share. The ADR price is quoted in U.S dollars on North American exchanges and the dividends are credited-again, in dollars-to the owner’s normal brokerage account
Some foreign shares are listed directly on various exchanges around the world. The New York Stock Exchange, for example, trades the shares of several hundred foreign companies. This provides investors with liquid, easy-to-trade stocks that have been approved by the Securities and Exchange Commission, as well as financial figures according to US norms. If the stock is quoted in dollars in New York, its value is still affected by the currency exchange rate. If the yen goes up against the dollar, the holder of a Toyota ADR will benefit, even if stock price has not changed a bit in Tokyo.
Besides traditional registered shares, some countries such as Switzerland, offer investors the choice of bearer shares, which do not require the registration of the owner’s name at the company headquarters. Other international investment vehicles available in several countries around the world-include participation certificates, which provide dividends like normal shares but do not allow the investor to vote at the stockholders’ meetings.
In some developing countries, foreign ownership of shares is still prohibited or made extremely difficult. It is therefore sometimes easier for investors to buy shares in a country fund, which consists of local shares put into funds that are made available to investors from others part of the world.
Despite the ease of trading provided by all these new international exchanges, cross border investing is still not seamless. National accounting laws require companies to adhere to strict local accounting rules, and some companies do not make the effort to adapt their financial statements to make them comprehensible to foreign investors. Many global companies, however, prepare different sets of books for various markets around the world. Investors can also learn about foreign companies just by clicking a mouse: CNN, Bloomberg, and many others news source provide online reports for almost every publicly quoted company in the world.