Types of International Investments

Published on: Dec 31 2010 by Shenron

Before moving on to describe the types of international investment, it is important to have some idea about what actually international investment is. Generally, an international investment theory illustrates the flow of investment capital into and out of a country by investors. Investors’ main aim is to maximize the return on their investment. The potential return on alternative investments in the home and foreign markets is one of the major factors that impact the international investment.

In recent years, it has become extremely easy and simple to invest worldwide. There are varieties of ways to invest in the international market that include: mutual funds, direct investments in foreign markets, U.S. traded foreign stocks and American Depositary Receipts.

Prominent growth has been in the market value of foreign stocks over the value of all U.S. stocks in 1985. But most of the investors still invest a very small percentage of their portfolio in the foreign market. Probably, the reason behind this is the continuous dramatic changes happening in the markets outside of the United States.

Following are given few of the most popular ways to invest in the international market:

Mutual Funds

Mutual funds are considered less burdensome than international stocks, as a lot of evaluating and tracking is involved in stocks. Mutual funds also branch out several different methods for the investor to invest through the funds in foreign market. You can take help from your advisors to manage funds for you. Some of the funds that invest in foreign stocks include:

  • Global Funds: These funds are less volatile than the straight international funds. You can invest through global mutual funds in foreign as well as local U.S. companies.
  • International Mutual Funds: These funds invest only in foreign companies. These types of funds help you to expand your investment.
  • International Index Funds: these funds work via matching the shareholdings of a target index and own a full participation in some part of the stock market. These funds don’t require advisors to manage the funds.

American Depository Receipts

To make a process of investing in foreign market easier, U.S. banks hold the certificates of ownership commonly known as American Depository Receipts (ADRs). It is basically the process in which you buy and sell ADRs you trade and settle in U.S. dollars. It involves quite a weary process as it takes a long time to receive information from the company and depository banks for their service charges.

Stocks Trading on Foreign Market

This process involve an extensive research as companies you are dealing with don’t file any reports with the SEC. you ask your broker to purchase stocks from the companies that only trade on a foreign stock market.

Foreign Direct Investment

Foreign direct investment (FDI) is described as an active investment in a foreign market. These sorts of investments don’t involve the purchasing of securities instead an investor build factories or directly gain control over the interest in foreign business in order to raise profit shares.

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