Global Portfolio Management - International Business Management

What is Global Portfolio Management?

The combination of the assets that are being invested in either international or foreign markets is known as Global Portfolio Management. The grouping or combination of assets depends on the securities. Some of the illustrations of Global Portfolio Management are as follows -

  • Buying shares of the foreign company
  • Buying bonds of foreign government
  • Purchasing the assets of the foreign company.

What are the factors that affect Global Portfolio Investment?

In order to invest in the international market, it is essential to understand and have the knowledge about the market in which the business is investing. The Global Portfolio Management is affected by the financial factors of the foreign country. The decisions regarding the Global Portfolio Management are influenced by some of the major factors such as -

Global Portfolio Management

Tax Rates

Global Portfolio Management is mainly influenced by the tax rates assigned to the dividends. The countries which levy lower rates of taxes on the dividends and the interest earned are chosen for investing by the investors. The after-tax earning that are being made from foreign securities are calculated by the investors.

Interest Rates

The countries that give high interest rates receive more inflow of money. But this tendency leads to weaken the local currency and this is not good for the economy for a long period of time.

Exchange Rates

Sometimes securities of foreign country are chosen for investing, in such situations, the return on investment is affected by many factors such as -

  • Changes in the security values
  • The value of currency related to that security may fluctuate

When the foreign currency in which the investor has invested, comes don drastically then the investors shift their investments.

What are the different modes of Global Portfolio Management?

The stock exchange of a foreign country directly offers the investors with their respective depository receipts of foreign securities. Two important modes of Global Portfolio Management are Portfolio Equity and Portfolio Bonds.

Portfolio Equity

The income that is earned from the equity securities excluding the direct investment such as shares, stocks, depository receipts and share purchases by the foreign investors constitute Portfolio Equity.

Portfolio Bonds

The investments that are either long-term or medium-term are termed as bonds. The following are the situations that are considered appropriate for investing in portfolio bonds are as follows -

  • When there are additional funds to invest
  • When there is either any one or a combination of income and growth potential
  • When the investor is ready to block the investment for a loner period of say about five years
  • When the investor is ready to take the risk
  • When the investor need to pay tax and falls under any one of the basic, higher or additional-rate category.

Global Mutual Funds

When the investor desire to invest in the shares of mutual funds which are internationally diversified global Mutual funds is the right choice for such investors. The mutual-funds which are open-ended serves to be even more better option for the investors.

Closed-end Country Funds

The investments that are being made in international securities and not in portfolio are considered as closed-end funds. The close-end funds fetch more interest and thus turn out to be more profitable. But the benefits associated with diversification cannot be availed as the systematic risks associated cannot be reduced.

What are the drawbacks of Global Portfolio Management?

The concept of Global Portfolio Management is not left without drawbacks. Some of such drawbacks are as follows -

  • Unfavourable Exchange Rate Movement – The risk associated with the fluctuations in the exchange rate is inevitable to the investors. These changes in the exchange rate have a great influence on the value of the foreign portfolio and also on the earnings made from the investments. Even the security values tend to decrease.
  • Frictions in International Financial Market – Foreign economy is not left without market fluctuations. These market frictions are the outcomes of changes in the Government control, changes in the tax laws, changes in the transaction costs, which may be either explicit or implicit. Several mechanism are being undertaken by the government to control these fluctuations, such as levying taxes on international flows of FDI and also restrictions being applied on the outflow of funds.
  • Manipulation of Security Prices – The prices of the securities can be influenced by some of the powerful brokers and government bodies. Government can make it possible by making changes to the monetary and fiscal policies. A majority of the securities that are being traded on the stock exchanges are owned by banks and other public sector institutions.
  • Unequal Access to Information – Global Portfolio Management may also be influenced by the cross-cultural differences. The information with regard to the international investors very difficult to know before. In the situations where obtaining information is very difficult than investment turns out to be more risky.

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