A Detailed Analysis of International Investment and Global Crisis

This report provides a detailed analysis of the global financial crisis, examining its causes, including high lending practices and the subsequent debt crisis, and its impact on international investment. It assesses the effects on financial markets by evaluating the performance of selected companies across various sectors before and after the crisis. The report also explores the use of monetary and fiscal policies in response to the crisis, including interest rate adjustments and government bond yields, and their impact on economic recovery. The analysis includes tables and figures illustrating market trends, company performance, and portfolio returns, offering insights into the crisis's effects on investment strategies and market dynamics. The conclusion summarizes the findings and emphasizes the significant impact of the crisis on financial markets and the importance of effective policy responses. The report, contributed by a student, is available on Desklib, a platform offering AI-powered study tools.

INTERNATIONAL INVESTMENT

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................................................................1
QUESTION 1..............................................................................................................................................................................................1
Assessing the causes of global crisis.......................................................................................................................................................1
QUESTION 2..............................................................................................................................................................................................6
Critically analyzing the impact of global crisis on financial market.......................................................................................................6
Use of monetary and fiscal policy.........................................................................................................................................................12
Performance of economy since 2009.....................................................................................................................................................13
CONCLUSION..........................................................................................................................................................................................20
REFERENCES..........................................................................................................................................................................................21
APPENDIX................................................................................................................................................................................................23

INTRODUCTION
International investment may be served as a strategy that is undertaken by an investor with the motive to select globally best
securities. Hence, international investment includes mutual funds, American Depository receipt, mutual funds etc. on which high level
of emphasis is laid by the investors with the motive to generate high margin. Now, for making high value addition in money investors
make more focus on investing money in riskier securities. This in turn enables them to generate high margin as compared to other
securities. However, when investors trade or deal at global level them overall economic condition has high level of impact on the
return generated by investors. In this, report will present the reasons due to which situation of crisis occurred. Besides this, it will
provide deeper insight about the extent to which condition of crisis has placed on financial market. Further, it also depicts the manner
in which fiscal and monetary policies have an impact on the recovery of nation’s economy.
QUESTION 1
Assessing the causes of global crisis
Global financial crisis comes in existence due to many reasons and one of them was that one easy terms and conditions debt
was given to the people and business firms in the USA. Due to this reason people consistently keeps on purchasing properties at fast
rate. People give houses on rent and due to some reason suddenly in property market price of real estate properties start declining
(Blau, Ferber. and Winkler, 2013). Due to all these reasons number of defaulters also increase in the nation. All these things lead to
growing NPA in the nation and due to non-receipt of payment banks earn less profit in the business which lead to liquidation of
Merrill Lynch and Layman brothers which were one of leading banks of USA. In era of globalization economies of multiple nations
are interrelated to each other and negative trend in USA affected overall economic growth globally (Richardson, 2016). This heavily

affects its GDP growth rate and led to elevation in unemployment rate in the nation.From assessment, it has been identified that there
are several causes due to which crisis situation occurred in the period of 2007-09 (Patel, 2016). Main causes which are responsible for
the recessionary period are enumerated below:
 High lending: Banking institutions lay high level of emphasis on lending money to others with the aim to create more funds.
Hence, in the period of 2007, with the aim to create huge sum of money focus was laid by bank on offering new and high loans
(Schiek, 2016). The below mentioned graph clearly presents that in the period of 7 years banks doubled the amount of money
which in turn resulted into heavy debt in the economy.

(Source: Financial crisis & recessions. 2017)
 Debt became unpayabale: In the period of 2007, large sum of money was offered by banking institutio to borrowers who want
to invest into property market. This in turn resulted into high prices of houses along with the level of personal debt (Anginer,
Cerutti and Peria, 2016). Due to the high offering of home loan by banking institution lending activities were increased

significantly as compared to income (Anginer, Cerutti and Peria, 2017). Hence, due to less income and high lending activities
difficulties were faced by individuals in making repayment of loan (25 Major Factors That Caused or Contributed to the
Financial Crisis, 2017). Hence, high debt level was the major cause behind the occurrence of global crisis.
Chart reveal that real estate index value increased from year 2000 to 2006 Q1. Thereafter till 2011 Q3 house and propeerty
price declined sharply and again trend reverse happened and price rose to level of 240.
Figure 1USA real estate index value
Source: Bloomberg
 Banks refuses to lend:Usually, banking institutionprefers to lend money to others when it confident that the concerned amount
will be repaid by the borrower on due date. Thus, due tothis, at the time of economic downturn lending activities were limited

by banking institution (Stiles, 2016). Such aspect has placed negative impact on thegrowth and development of different
sectors. Moreover for expansionbusiness unit requires enough money. In addition to this, customers prefer to inverst money in
the luxurious product only when they have high disposable income or other sources. Decrease in the level of lending has
placed negative impact onthe development of organizations.
FED policy rate declined to first Q1 of 2004 from 2001 and then spike observed in same to Q3 of 2007. This clearly reflect
that bubble burst in 2007 but its commencement happened in 2004 when some problems were observed in economy and in
order to handle situatio bank raise interest rate (Kavada, 2017). After 2007 economy comes in recession and interest rates
further reduced so that more amnd more banks can be promoted to give loan for firms and boost can be given to economic
activities in the nation. Now after 2016 again interest rate increased to 1%.
Figure 2FED policy rate

Source: Bloomberg
QUESTION 2
Critically analyzing the impact of global crisis on financial market
With the motive to assess the impact of global financial crisis onstock market 5 companies from different sectors have been
selected such as tourism, development, hospitality, retail and insurance. In this regard, for analyzing performance of stock market in
the context global recession both pre and post crisis evaluations have been done. The rationale behind doing such evaluation is to
assess thelevel to which return associated with the different types of firm affected due to the crisis.
During crisis (2007 – 09)
It can be seen from chart that from 2007 to first month of 2009 index value declined sharply after 2008 but after month of January
2009 again recovery observed in index value, which reflect that trend reversal happened, and investor get benefit to some extent of
this trend.
0
50
100
150
S&P 500
Figure 3USA market pre crisis

Source: Bloomberg
S.NO Companies Price Return (%) y-o-y Beta Industry
1 Jacobs engineering group 37.20 4.71% 1.35 Tourism
2 Chevron corporation 57.31 7.73% 0.59 Car insurance
3 Ford Motors 7.88 6.25% 2.79 Development
4 Raymond James financial Inc 21.67 45.97% 1.35 Hospitality
5 American express 35.93 3.49% 2.28 Retail
Table 1: Return and Beta assessment (in crisis)
Companies Price Stocks
Total
investment
Expected
return Weight
Jacobs engineering group 37.20 20 744.06 6.38% 23.63%
Chevron corporation 57.31 18 1031.64 4.59% 32.76%
Ford Motors 7.88 18 141.84 17.42% 4.50%
Raymond James financial Inc 21.67 22 476.78 61.87% 15.14%
American express 35.93 21 754.56 7.91% 23.96%
Total investment 3148.88 100.00%
Table 2: Total investment assessment (in crisis)
Companies Price
Expected
return
Stock
s
Expected
price
Capital
gain
Total value at
end
Total capital
gain
Jacobs engineering group
37.20315
2 6.38% 20 40 2.37 791.51 47
Chevron corporation
57.31322
5 4.59% 18 60 2.63 1079.02 47
Ford Motors 7.88022 17.42% 18 9 1.37 166.56 25
Raymond James financial
Inc
21.67201
6 61.87% 22 35 13.41 771.76 295
American express
35.93121
7 7.91% 21 39 2.84 814.24 60

474
15.0594%
Table 3: Portfolio return (in crisis)
Workings
Formula for calculating expected return RF+B(AMR-RF)
US RFR 0.02%
S.NO Companies Price Return (%) y-o-y Beta
Expected
return
1 Jacobs engineering group 37.20 4.71% 1.35 6.38%
2 Chevron corporation 57.31 7.73% 0.59 4.59%
3 Ford Motors 7.88 6.25% 2.79 17.42%
4 Raymond James financial Inc 21.67 45.97% 1.35 61.87%
5 American express 35.93 3.49% 2.28 7.91%
Post crisis
S.NO Companies Price Return (%) y-o-y Beta Industry
1 Jacobs engineering group 59.34 7.08% 1.39 Construction & Engineering
2 Chevron corporation 114.72 13.93% 0.59 Energy
3 Ford Motors 12.13 8.60% 2.79 Automobile Manufacturers
4 Raymond James financial Inc 84.72 19.31% 1.35
Investment Banking &
Brokerage
5 American express 93.95 24.01% 2.28 Financials

Table 4: Return and Beta assessment (in crisis)
Companies Price Stocks Total investment Expected return Weight
Jacobs engineering group 59.34 20 1186.8 9.83% 16.24%
Chevron corporation 114.72 18 2064.96 8.22% 28.26%
Ford Motors 12.13 18 218.34 23.96% 2.99%
Raymond James financial Inc 84.72 22 1863.84 26.06% 25.51%
American express 93.95 21 1972.95 54.71% 27.00%
Total investment 7306.89 100.00%
Table 5: Total investment assessment (in crisis)
Companies Price
Expected
return
Stock
s
Expected
price
Capital
gain
Total value at
end
Total capital
gain
Jacobs engineering group 59.34 9.83% 20 65 5.83 1303.43 117
Chevron corporation
114.7
2 8.22% 18 124 9.44 2234.80 170
Ford Motors 12.13 23.96% 18 15 2.91 270.65 52
Raymond James financial
Inc 84.72 26.06% 22 107 22.08 2349.57 486
American express 93.95 54.71% 21 145 51.40 3052.37 1079
Total capital
gain 1904
Return 26.1%
Table 6: Portfolio return (in crisis)
Working note:

Formula for calculating expected return RF+B(AMR-RF)
US RFR 0.02%
S.NO Companies Price Return (%) y-o-y Beta
Expected
return
1 Jacobs engineering group 59.34 7.08% 1.39 9.83%
2 Chevron corporation 114.72 13.93% 0.59 8.22%
3 Ford Motors 12.13 8.60% 2.79 23.96%
4 Raymond James financial Inc 84.72 19.31% 1.35 26.06%
5 American express 93.95 24.01% 2.28 54.71%
Interpretation: By doing assessment, it has been identified that during the period of crisis from 2007 to 2009, expected return
all then selected business unit was positive.The main reasons behind such positive trend or return is that all the selected business units
have attained leading position in their own sector. Thus, it can be presentedthat through the means of sound strategic framework US
firms have maintained positive trends in the category of expected return. However, prices of securities were also lower during the time
of recession which in turn clearly shows that recessionary condition negatively affectedsecurities values and return.In contrast to this,
after recessionary period such 2007-09, all the business organizations have made their best possible efforts with the motive to recover
from the situation of crisisand reduce the effect of same. Such aspect or efforts can be seen in the pricing trend of selected companies.
At the end of recessionary period, price of Jacobs engineering group was 37.20, whereas in 2017 it reached on59.34 respectively.
Along with this, share prices Chevron, Ford, Raymond James financial Inc and American express also increased significantly
after recessionary period. However, due to the increasing competition, market trend, low purchasing power of customers and
ineffective strategic framework failed to attain success in enhancing price level (Bel and Paap, 2016). Nevertheless, as compared to
before time,with the help of competent and strategic framework all firmshas improved share price and overallperformance