A project of International Business

Management Topic: International Stock Market

Submitted to:
Dr. Sohail Younas
Submitted By:
Hajira shoaib BBA- F19-A-019
Maryam azhar BBA- F19-A-22
Rukhma naeem BBA- F19-A-39
Sundas BBA-F19-A- 38
Aqsa BBA-F19-A-45
Session 2019-22 Bachelor of Business Administration

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INTRODUCTION
What is stock market?
Stock market is a place where people meet, decide the price and buy or sell shares. The main
purpose of stock market is it helps you to facilitate your transaction. Stock market can be a very
sophisticated market place, where stocks and shares are the traded commodity. At the same time,
it is central to the creation and development of a strong and competitive economy. It is a key to
structural transformations in any economy; from traditional, rigid, insecure bank-based to a more
flexible, more secure economy that is immune to shocks, fluctuations and lack of investors’
confidence (Stapley, 1986). According to Arnold (2004), stock markets are where government
and industry can raise long-term capital and investors can purchase and sell securities.
Typically, markets, whether they be shares, bonds, cattle or fruit and vegetables, are simply
mechanisms to allow the possibility of trade between individuals or organizations. Whilst some
markets (e.g. for livestock) are physical where buyers and vendors meet to trade, others (e.g. for
foreign currency) are a national network, based on communication using telephone lines and
computer links, with no physical meeting place. Additionally, very few stock exchanges around
the world still possess a physical location where buyers and sellers meet to trade.

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The International Stock Market
Stocks are financial assets that indicate ownership in a company. They are also known as equity
shares or just shares. If you have stocks in a company, it means that you own a part of it (often a
small percentage).If you own stocks in Air Canada, you own a part of the company
Air Canada plane
You are not paid interests for having stocks. Instead, you earn money in dividends, when the
company makes a profit. You can also make money by capitalization when the stock price goes
up. It means more people are willing to invest in that company, so it capitalizes. Your stock will
be worth more money and the difference with the price you bought at, becomes a profit for you.
The stock market handles buying and selling operation of stocks. The international stock market
refers to all the international markets that negotiate stocks from their domestic companies. For
example, you can buy stocks from Apple at the local American market, but to get stocks from the
Japanese Sapporo, you need to go the international (Japanese) market. Most countries have their
own stock exchange.
The indexes track the fluctuations in the value of stocks of one market. Some of the most
important indexes are the Dow Jones and NASDAQ, operating in New York, the Nikkei 225 in
Tokyo, the DAX in Frankfurt, and the FTSE in London.
The potential earning of stocks from developing markets is sometimes higher but also involves
more risks, especially because of currency fluctuations. Therefore, international markets usually
represent only a fraction in the portfolio of commercial banks and other institutional investors,
often between 15 and 25%. The difference remains in domestic assets.

International Complexities
The international market works similarly to the domestic market. However, there are some
difficulties because the assets are abroad and usually in foreign currency.

Understanding the Stock Market

The stock market allows buyers and sellers of securities to meet, interact, and transact. The
markets allow for price discovery for shares of corporations and serve as a barometer for the
overall economy. Buyers and sellers are assured of a fair price, high degree of liquidity, and
transparency as market participants compete in the open market.
How the Stock Market Works

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Stock markets provide a secure and regulated environment where market participants can
transact in shares and other eligible financial instruments with confidence, with zero to low
operational risk. Operating under the defined rules as stated by the regulator, the stock markets
act as primary markets and secondary markets.
As a primary market, the stock market allows companies to issue and sell their shares to the
public for the first time through the process of an initial public offering (IPO). This activity helps
companies raise necessary capital from investors.
A company divides itself into several shares and sells some of those shares to the public at a
price per share. To facilitate this process, a company needs a marketplace where these shares can
be sold and this is achieved by the stock market. A listed company may also offer new,
additional shares through other offerings at a later stage, such as through rights issues or follow-
on offerings. They may even buy back or delist their shares.
Investors will own company shares in the expectation that share value will rise or that they will
receive dividend payments or both. The stock exchange acts as a facilitator for this capital-
raising process and receives a fee for its services from the company and its financial partners.
Using the stock exchanges, investors can also buy and sell securities they already own in what is
called the secondary market.

HISTORY
  Late 1400s: Antwerp, or modern day Belgium, becomes the center of international trade.
Merchants buy goods anticipating that prices will rise in order to net them a profit. Some bond
trading also occurs.
• 1611: The first modern stock trading is created in Amsterdam. The Dutch East India Company
is the first publicly traded company, and for many years, it is the only company with trading
activity on the exchange.
• Late 1700s: A small group of merchants made the Buttonwood Tree Agreement. The men meet
daily to buy and sell stocks and bonds, a practice that eventually comes to form the New York
Stock Exchange.
• 1790: The Philadelphia Stock Exchange is formed, helping spur the development of the U.S.’s
financial sectors and the country’s expansion west.
• 1896: The Dow Jones Industrial Average is created. It initially has 12 components that were
mainly industrial companies.
• 1923: The early version of the S&P 500 is created by Henry Barnum Poor’s company, Poor’s
Publishing. It begins by tracking 90 stocks in 1926.
• 1929: The U.S. stock market crashes after the decade-long “Roaring 20s,” when speculators
made leveraged bets on the stock market, inflating prices.
• 1941: Standard & Poor’s is founded when Poor’s Publishing merges with Standard Statistics.
• 1971: Trading begins on another U.S. stock exchange, the National Association of Securities
Dealers Automated Quotations, otherwise known as the NASDAQ.
• 1987: Corporate buyouts and portfolio insurance helped prices in the market run up until Oct.
19, what becomes known as “Black Monday.”

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•  2008: The stock market crashes after the boom and bust of the housing market, along with the
proliferation of mortgage-backed securities in the financial sector.
What Are the Functions of a Stock Market?
The stock market ensures price transparency, liquidity, price discovery, and fair dealings in
trading activities. The stock market guarantees all interested market participants have access to
data for all buy and sell orders, thereby helping in the fair and transparent pricing of securities.
The market also ensures efficient matching of appropriate buy and sell orders.
Stock markets need to support price discovery where the price of any stock is determined
collectively by all of its buyers and sellers. Those qualified and willing to trade should get instant
access to place orders and the market ensures that the orders are executed at a fair price.
What Is the Significance of the Stock Market?
The stock market is a component of a free-market economy. It allows companies to raise money
by offering stock shares and corporate bonds and allows investors to participate in the financial
achievements of the companies, make profits through capital gains, and earn income through
dividends. The stock market works as a platform through which savings and investments of
individuals are efficiently channeled into productive investment opportunities and add to the
capital formation and economic growth of the country.
Classification of international stock market

Market capitalization
Market cap or market capitalization refers to the total value of all a company's shares of stock.
Market Capitalization is the aggregate dollar-value of all outstanding shares of a
company’s stock. A company’s market cap is the first way an investor assesses how “big” a
company is. It is calculated by multiplying the price of a stock by its total number of outstanding
shares. For example, a company with 20 million shares selling at $50 a share would have a
market cap of $1 billion

Formulae
Market Capitalization formula = Current Market Price per share * Total Number of Outstanding
Shares.

Levels of market capitalization

There are traditionally five categories of market capitalization:

1. Mega-cap
2. Large-cap
3. Mid-cap
4. Small-cap

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 5. Micro-cap.
Traditionally, there are three levels of market capitalization large-cap mid-cap and small-cap
However, in recent years, mega-cap and micro-cap have been added to the top and bottom of
these levels to reflect company size ranges, while nano-cap refers to “penny stocks” with the
highest risk. These levels are set based on the market capitalization value. Each level has a
range, though the ranges are not standardized and may vary from one source to another.

Mega-cap
This level describes the biggest companies. Mega-cap companies generally have a market value of more
than $200 billion and are often the most conservative choice for investors. A mega-cap company's large
size generally means it will provide a low but consistent return on investment.  Famous mega cap firms
include Apple, Amazon, Microsoft, Meta, Alphabet, & Nvidia. Investment in mega cap firms
ensures guaranteed profits with low risk even in a volatile

Large-cap

Large-cap describes companies with a market value of $10 billion to $200 billion. Investing in
large-cap companies is often a safe choice because they are large enough to provide security and
consistency for investors. Large Cap Company is also known as blue chip company or blue chips
stock large cap can’t provide much return to their share holder because they growth expanded to
that extent in which growth rate becomes slower than before . A few well-known companies that
are large-cap stocks include Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet
(GOOGL) and Facebook (FB). 

Medium cap stock

Mid-cap stocks are shares of companies with total market capitalization in the range of about $2
billion to $10 billion.  As the name implies, a mid-cap company falls in the middle between
large-cap (big-cap) and small-cap companies. Mid cap are small in size compare to large cap
companies. The companies are small in size so risk level is high Mid-cap stocks are seen as a key
tool in portfolio diversification because they provide a balance of growth and stability. Some of
the stocks classified as mid cap include Park Hotels & Resorts Inc., DCP Midstream LP, and
Range Resources Corp.

Small cap stock

A small-cap stock is a stock from a public company whose total market value, or market
capitalization, is about $300 million to $2 billion. Small-cap stocks tend to offer greater returns
over the long-term, but they come with greater risk compared to large-cap companies. The
greatest downside to small-cap stocks is the volatility, which is greater than large-caps. Some of
the stocks classified as small caps are insurance company Genworth Financial Inc. (GNW),
printing and imaging company Eastman Kodak Co. (KODK), and retail drugstore chain Rite Aid
Corp.

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Micro-cap
Micro-cap companies generally have a market value between $50 million and $300 million and
offer the same risks and rewards as small-cap companies. Often, the financial sector won't
differentiate between micro-cap and small-cap and will instead include all companies at these
two levels in small-cap Example of Micro-Cap Stock Peoples Financial Services Corp. is an
example of a micro-cap stock traded in NASDAQ. It was founded in 1905 and is headquartered
in Pennsylvania, USA.
Nano-cap
Similarly, publicly traded companies with a market value of less than $50 million are referred to
sometimes interchangeably as nano-companies or micro-cap. Nano-cap companies are some of
the riskiest to invest in, but also growing in popularity. Nano cap companies are considered the
smallest stocks by market cap .Also referred to as "penny stocks," nano caps are highly risky
investments due to their size, stability, and potential for manipulation.

Impacts
Pros
 Grow with economy
 Stay ahead of inflation
 Easy to buy
 Don't need a lot of money to start investing
 Income from price appreciation and dividends
 Liquidity

Cons
 Risk
 Stockholders of broke companies get paid last
 Takes time to research
 Taxes on profitable stock sales
 Emotional ups and downs
 Competing with institutional and professional investors

OUTCOMES
Investors are creatures of habit. They do the same thing over and over again without a thought of
approaching the market differently. Whether they invest in stocks, bonds, commodities or even
currencies, everyone has their own entrenched way of choosing investments.

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Outperformance
Believe it or not, the U.S. stock market has not been the world's top performing market over the
last 25 years. Even in 2017, with the Dow soaring 25%, the S&P 500 adding 19% and the tech-
heavy Nasdaq booking 28% gains, the United States took fifth place in the global performance
ranking.
In 2017, Argentina's stock market exploded 77%, hitting a record high in the final week of the
year. These gains came on the back of a 45% surge in 2016, driven by President's Mauricio
Macri's sweeping pro-business economic reforms.Make no mistake, the Argentinian economy
suffers from high inflation and a struggling currency, but it is quickly morphing into a haven for
South American business.
Turkey and Nigeria ended the year in second and third place, with 48% and 42% gains
respectively. Hong Kong's widely followed Hang Seng index earned forth place in the global
rankings with a 36% advance Of course, not every international stock market posted stellar
gains. Qatar, for one, led the losers lower with an 18% drop.But given the outperformance of the
U.S. stock market last year, it's extremely likely that the developed world, and even second- and
third-tier economies will trend upward for the next decade or longer.

Diversification
Diversification is often the key to protecting against catastrophic downside in the stock market,
and what better way to diversify than by spreading your risk across nations?
Despite the growing correlation between domestic and foreign equities, seeking diversification
internationally still makes investing sense, primarily as a way to access lower market valuations.
While U.S. stocks trade for roughly 20-times trailing earnings on average, international
developed markets average in the 15-times trailing earnings area and emerging markets trade
near 13 times. These numbers seem to suggest greater growth potential in international and
emerging markets than in the United States.

Global Growth
The United States is a mature market, meaning relative growth is not as rapid as other
economies. Growth is cyclical, and investing internationally enables you to capture profits from
shifting economic cycles. The global economy is in a growth phase, making now the ideal time
to diversify internationally.
Furthering the growth case, The International Monetary Fund (IMF) is forecasting global growth
to continue at a steady rate. An overall expansion of nearly 4% is forecasted in 2018. For
developing economies, the expected rate improves to 5%.Specifically, the IMF projects 7% GDP
growth in India and over 6% in China in 2018, building a compelling case for international
diversification in these nations.

Greater Choice

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Investing outside of the United States provides a much greater choice of companies and
opportunities. While information may be harder to come by and companies more challenging to
assess, the potential reward can be much greater.

Currency Fluctuations
Often viewed as a negative, currency volatility works both ways. If the exchange rate moves in
your favor, you could end up earning a little premium on your investment.Risks To Consider:
Despite all the benefits of investing internationally, substantial risks exist. Political risk is
something we really don't have to be worried about in the United States. However, particularly in
emerging markets, political risk can be very high. A change of regime or economic philosophy
can send stocks plummeting. However, the flip-side to political risk is that a more pro-business
regime may come into power, sending stocks soaring.

CONCLUSION
Let's recap what we've learned:
•Stock means ownership. As an owner, you have a claim on the assets and earnings of a
company as well as voting rights with your shares.
•Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and
have a higher claim than shareholders. This is generally why stocks are considered riskier
investments and require a higher rate of return.
•You can lose all of your investment with stocks. The flip-side of this is you can make a lot of
money if you invest in the right company.
•Stock markets are places where buyers and sellers of stock meet to trade. The NYSE and the
NASDAQ are the most important exchanges in the United States.
•Stock prices change according to supply and demand. There are many factors influencing
prices, the most important being earnings.
There is no consensus as to why stock prices move the way they do.
•To buy stocks you can either use a brokerage or a dividend reinvestment plan (DRIP).
Stock tables/quotes actually aren't that hard to read once you know what everything stands for!
We have learned about The International Stock Market.
Which concludes that the Stocks that are financial assets that indicate ownership in a company.
They are also known as equity shares or just shares. If you have stocks in a company, it means
that you own a part of it (often a small percentage).
The stock market handles buying and selling operation of stocks. The international stock market
refers to all the international markets that negotiate stocks from their domestic companies.

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Coming towards the International Complexities:
The international market works similarly to the domestic market. However, there are some
difficulties because the assets are abroad and usually in foreign currency.

External and geographical factors have their own impacts like:

•external factors can make international investments riskier and more complex.
Foreign currency can affect profitability.
•Geopolitical factors can have a big impact as well, especially in the emerging markets.
Stock markets provide a secure and regulated environment where market participants can
transact in shares and other eligible financial instruments with confidence, with zero to low
operational risk. The stock markets act as primary markets and secondary markets
We have discussed about primary market and secondary market. Where the stock market allows
companies to issue and sell their shares to the public for the first time through the process of an
initial public offering (IPO). Is called primary market whereas using the stock exchanges,
investors can also buy and sell securities they already own in what is called the secondary
market.
Market Cap Meaning
A company’s market cap is the first way an investor assesses how “big” a company .There are
traditionally five categories of market capitalization:
1. Mega-cap
2. Large-cap
3. Mid-cap
4. Small-cap
5. Micro-cap
Talking about the Pakistan’s stock market it is a myth that the stock market in Pakistan is a
gambling den that is not based on fundamentals. However, just like the stock markets of the
developed world, it is one of the best asset class available for long term investment. We have
already discussed in detail about the significance, pros and cons, functions and outcomes of the
international stock market in detail. We hope that our presentation has given you a good idea of
what stocks are and how stock market works.

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Classification of international stock market

There are three types of international stock market

1. Large cap stock

2. Medium cap stock
3. Small cap stock

Large cap stock

Large cap stocks also known as big caps are shares that trade for corporations with a market
capitalization of $10 billion or more. In this there is less risk and return because these companies
are well established. Large Cap Company is also known as blue chip company or blue chips
stock large cap can’t provide much return to their share holder because they growth expanded to
that extent in which growth rate becomes slower than before

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