EECS 3101 Lecture Notes - Lecture 16: Royal Dutch Shell, E-Trade, Transaction Cost
28 Jun 2018
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EECS 3101 Lecture 16 Notes
Introduction
Investment in MNC Stocks
In the United States, for example, Royal Dutch Shell (of the Netherlands), Sony (of
Japan), and many other foreign stocks are sold on U.S. stock exchanges.
Because the number of foreign stocks listed on any local stock exchange is typically
quite limited, this method by itself may not be adequate to achieve the full benefits of
international diversification.
Brokerage firms have expanded the list of non-U.S. stocks that are available to U.S.
investors.
For example, Fidelity now executes stock transactions in many different countries for its
U.S. investors.
The transaction cost of investing directly in foreign stocks is higher than that of
purchasing stocks on U.S. stock exchanges.
One reason for the higher cost is that the foreign shares purchased by U.S. investors
typically remain in the foreign country, and there is a cost of storing the stocks and
processing records of ownership.
Some brokerage firms have substantially reduced their fees for international stock
transactions recently
However, they may require a larger minimum transaction value (such as $5,000) to
execute the transaction.
The fees may even vary among foreign stocks at a given brokerage firm.
For example, the fees charged by E*Trade for executing foreign stock transactions vary
with the home country of the stock.
The operations of an MNC are a form of international diversification.
Like an investor with a well-managed stock portfolio, an MNC can reduce risk (variability
in net cash flows) by diversifying sales not only among industries but also among
countries.
Document Summary
In the united states, for example, royal dutch shell (of the netherlands), sony (of. Japan), and many other foreign stocks are sold on u. s. stock exchanges. For example, the fees charged by e*trade for executing foreign stock transactions vary with the home country of the stock. The operations of an mnc are a form of international diversification. Like an investor with a well-managed stock portfolio, an mnc can reduce risk (variability in net cash flows) by diversifying sales not only among industries but also among countries. In this sense, the mnc as a single firm can achieve stability similar to that of an internationally diversified stock portfolio. Many other foreign stocks are sold on u. s. stock exchanges. Because the number of foreign stocks listed on any local stock exchange is typically quite limited, this method by itself may not be adequate to achieve the full benefits of international diversification.
