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Interest rates and share investments

Write about the Global Fixed Interests and Share Investment Opportunities.

In this paper, the countries considered for this study include Canada, the United States of America and the United Kingdom. Their specific performances will later be compared to the Australia financial market to have a global scenario of the field drawn. Interest rates and share investments in these countries, like everywhere else around the globe are determined by their specific economic environment which results from many external factors (Holston, Laubach and Williams, 2017). In addition, they insist with other factors constant, inflation is a major player in determining the interest rates in a country. The trade is a popular investment with investors engaging in  the both domestic and the international levels.

Over the recent years, use of the internet has been known to play an important role in the financial sector as it does with every other sector. Preis, Moat, and Stanley (2013) declared that the trend in the stock markets can be determined accurately by observing the information available in the search engines. For instance, if a company happens to generate a negative headline, then its stock shares value drops instantly thus making loss worth a huge amount of money in a very short time. In addition, they claimed that the more a product was frequently viewed on the search engines, the more people were interested in purchasing it hence the survey to determine the move to invest will be productive (Preis, Moat & Stanley).

Government bonds are a common investment for individuals whose aim is to make a fixed profit within a specific period of time in many countries around the world. In the case of Canada, where lending can be done to the regional governments, the entrepreneur would be discouraged due to the possibility of risks that may, in the long run, lead to lower chances of getting back one’s money within the specified time. In this regard, the central government has offered a provision whereby the terms of lending are similar despite the level at which the loan is offered (Scuknecht, Von, and Wolswijk, 2009 p.16).

Khan, (2007, p.1) claims that at around the time he published this paper,  there had been witnessed immense transparency in the government bonds since it was taking place on an electronic platform which is easier to verify as opposed to physical files whose volumes used to be large and less efficient to use. The efficiency realized in this technological era has resulted to enlarging the market by opening it up to foreign investors as well as simplifying the process such that more individuals can participate within a shorter period of time as compared to when the activities were carried out manually (Khan 2007 p.5).

The role of the internet in the financial sector

Youngman (2009 p.1) insist that concentration of banks in financial market was as a result of crisis experienced in the sector. Apparently, the view presented is that this evolution of the institutions has been able to plan and come up with strategies that are conscious of the possible risks that may be encountered in the future. Youngman (2009 p.3) claims that there are improvements within banks to better the services and financial market with time which involves learning new trends in the industry and coming up with means of curbing them for the benefit of the entire market.

Reinhart and Rogoff (2008, p.340) indicates that in 2007, the country witnessed a reduction in wealth and increased challenges in the credit availability as well as escalating risk margins. They claim that the crisis resulted from low prices of the housing at the time, which attracted buyers with low-income and resulted in high loan defaulters thus affecting the whole banking sector. At the same time, the public debt was high due to the instability in the country which placed them at a disadvantage within the global financial market (Reinhart and Rogoff, 2008 p.342). As such, there emerged private financial institutions who offered the much-needed loans for mortgages and in turn overturned the situation with most of the currency that would have spent abroad was multiplied in the country (Reinhart and Rogoff, 2008 p.342).

Gillan and Starks (2007 p. 31) claim that shareholders in the country have evolved through activism to fight or their rights in the companies that they invest in for many decades and at the point they are now have made huge progress in the market. Consequently, the market is viable and convenient for any interested individuals. The movement paved ways for the investors to have decision-making rights which in turn gives the involved parties a sense of ownership. As a result, the market has many participants making it one of the most popular for all investors regardless of the amount they are willing to put in.

In a survey carried to determine among the commodities that dominate financial markets which are riskier than others, Baur and Lucey (2010 p. 222) insist that stocks are riskier than bonds. The observation can be explained by the fact that with bonds there is a certainty at a specific interval, a pre-determined amount of interest will be made by the invested money while in the share market the interest made is dependent on the company’s financial situation. As much as the risk in stock investment is relatively high, the outcome could in many cases be more productive as compared to the low-risk products. The information could play an important role in guiding the market to some extent even defining where most individuals are willing to put their resources based on their risk-taking levels.

Canada Financial Market

Grinblatt and Titman (2016, p22) refer to London as the ancient financial headquarter due to the growth experienced in earlier centuries when most of other parts of the world were far from catching up. They add that although other cities around the globe have developed in equal measure with the United Kingdom, it is still ahead of the stock, foreign currency as well as bonds internationally. The success of the market is credited to use technology to ease the process as well as allowing entry of companies from other countries to bring in competition as they dismantle monopolies in the field (Grinblatt and Titman, p22). In addition, fixed commissions that defined the market were excluded and the market was freed to allow traders to occupy the position they were most comfortable with or even multiple niches at the same time.

The United Kingdom is arguably the largest market for Muslim financial services according to Hoepner, Rammal, and Rezec (2011, p2). Being able to capture a large part of the population and creating a service that is specific to their need is essential in ensuring that the investor has an unchallenged customer base. Sustainability of the market is based on ensuring that the services remain satisfactory to the target group to ensure they are not lured by competitors (Hoepner, Rammal and Rezec, 2011 p.3). For a company that targets this group, they should comply with specific guidelines in which way banks that have dominated the field in the United Kingdom have adhered to (Hoepner, Rammals and Rezec 2011, p5).

The country has opened their market to international investors have increased their capital and subsequently minimized costs incurred (Kay 2012, p2). However, he insists that the integrity of the sector is dependent on the practices carried out such that negative publicity or association with investors with a negative image may ruin the good reputation made over the years (Kay 2012 p2). Reputation in the field is everything in the business as it is a sector driven by the information available on the specific products as well as the channel where the interactions take place.

The banks which are the main financial institutions in the OECD countries used as a venue for the type of market discussed in this paper have shown major differences in the various regions. Those in Australia have less resilience compared to Canadian ones because their banks have a better capital ratio which makes them able to access funding even during a crisis as well as sustain bigger margins of losses without losing the ability to operate (Huang and Ratnovski, 2009 p4). In addition, they have clients who are not solely involved in the money market that is mainly guided by current events and would withdraw in a whim based on a negative publicity of the institution (Huang and Ratnovski 2009 p.5). They also claim that clients in these banks also include stable businesses that understand that the environment might not always be favorable hence will patiently wait for the rough patch to pass by while continuing to trust the financial institution with their assets (Huang and Ratnovski, 2009 p.5). In addition, they possess assets that are set aside to be liquefied in the difficult seasons when they are not able to access market loans (Huang and Ratnovski, 2009 p.4).  

The United States of America Financial Market

The OECD countries have diverse economic statuses which are reflected in their unique financial markets (Svaleryd and Vlachos, 2005 p. 2). These investments, especially in the specific regions, are guided by the policies they employ which serve to attract or discourage the citizens from investing in this sector (Svaleryd and Vlachos, 2005 p.9). A developed market specializing either in stock, bonds and/or foreign exchange is advantaged as compared to those that are still trying to catch up (Svaleryd and Vlachos, 2005 p.13). As such, based on our previous views on the United Kingdom, their competitive advantage in the financial market is bigger than in Australia due to the already established system in the former.

Recommendations and Conclusion

When a country’s financial situation is capable of causing an effect in other nations then they are a major player and ought to be listed in the global market index portfolio. As discussed earlier, the 2007 crisis brought about by the housing industry, the impacts were felt in other countries even to some to a greater extent than in the area of origin (Bakaert 2014, p2). As such, there is a clear indicator that slight imbalance in this nation as a global player has impacts on the worldwide market. It is also argued that challenges in the sector mostly affect the nations that have developed strong ties within the global market (Bakaert 2014, p2). Players within their domestic space experience less intensity of crisis as compared to their international counterparts due to the nature of the market.

Aguilera et al (2006, p1) insist that both the United States of America and the United Kingdom are major players within the corporate world. In the same sense, the markets were known based on which of the two regions they were based. Consequently, these are the major players based on my list that ought to be on the global portfolio. The other two, although they are major players, are not at the same level as the aforementioned ones. According to Aguilera et al (2006 p.2) although the markets occupy regions very far apart from each other they have many similarities aimed at client satisfaction in the services and products offered. Also, considering that both players advertise in an international platform, major differences would place the ones offering less at a disadvantage. However, there are some notable differences that make each of the two players unique (Aguilera et al 2006 p.153). These differences in the operation included social and environmental welfare put into consideration by the corporate players in the United Kingdom due to the need for these players to create a good public perception (Aguilera 2006 p.152). In the United States of America, there was less attention as compared to the European counterparts most likely because their environment did not put them under pressure to provide these services (Aguilera 2006 p.153).

Financial Market in the United Kingdom

Edison and Warnock (2004 p.1) claim that when financial markets involved only in domestic trade, they reduce their risk index since it is lower on the international scene due to stability and sharing among many players. In the same footing, if Australia and Canada were able to play at the same level with their counterparts and open their markets to compete at the ultimate level their chances of being viable to get similar portfolio would be increased.

References

Aguilera, R.V., Williams, C.A., Conley, J.M. and Rupp, D.E., 2006. Corporate governance and social responsibility: A comparative analysis of the UK and the US. Corporate Governance: An International Review, 14(3), pp147-158.

Aitken, R., Chaudhry, M.Q., Boxall, A.B.A. and Hull, M., 2006. Manufacture and use of nanomaterials: currentstatus in the UK and global trends. Occupational medicine, 56(5), pp.300-306.

Baur, D. G. and Lucey, B. M., 2010. Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review 45, no. 2 (2010): 217-229.

Bekaert, G., Ehrmann, M., Fratzscher, M. and Mehl, A., 2014. The global crisis and equity market contagion. The Journal of Finance, 69(6), pp.2597-2649.

Edison, H.J. and Warnock, F.E., 2004. US Investors’ emerging market equity portfolios: a security-level analysis. The Review of Economics and Statistics, 86(3), pp.691-704.

Gillan, S. and Starks, L. T., 2007. The evolution of shareholder activism in the United States.

Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.

Hoepner, A.G., Rammal, H.G. and Rezec, 2011. Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries. The European Journal of Finance, 17(9-10), pp. 829-850.

Holston, K., Laubach, T. and Williams, J.C., 2017. Measuring the natural rate of interest: International trends and determinants.  Journal of International Economics.

Huang, R. and Ratnoviski, L., 2009. Why are Canadian banks more resilient? (No.9-152). International Monetary Fund.

Kay, J., 2012. The Kay review of UK equity markets and long-term decision making. Final Report. 2012 Feb;112.

Khan, N., 2007. Impacts of electronic trading platforms on the brokered interdealer market for Government of Canada benchmark bonds (No. 2007,5). Bank of Canada Working Paper.

Preis, T., Moat, H.S. and Stanley, H.E., 2013. Quantifying trading behavior in financial markets using Google Trends. Scientific reports, 3, p.srep01684.

Reinhart, C. M. and Rogoff, K. S., 2008. Is the 2007 US sub-prime financial crisis so different? An international historical comparison (No. w13761). National Bureau of Economic Research.

Schuknecht, L., Von Hagen, J. and Wolswijk, G., 2009. Government risk premiums in the bond market: EMU and Canada. European Journal of political Economy, 25(3), pp. 371-384.

Youngman, P., 2009, June. Procyclicality and value at risk. In Bank of Canada Financial System Review.

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