FIN 335 Milestone Four Guidelines and Rubric
The final project for this course is the creation of a market analysis report that analyzes various organized global and domestic exchange markets and compares
and contrasts performance for different investment products.
In this milestone, you will submit a draft of Risks and Returns (Section IV) of the final project. You will analyze the risks and returns of different investment
instruments in the U.S. and non-U.S. markets you selected in Milestone One. You may find it helpful to use online brokerage aids or other tools (e.g., Yahoo!
Finance, Bloomberg Business, TD Ameritrade) in conducting this analysis. Review stock, bond, mutual fund, and commodity performance and their movement
over time in these markets. Your analysis should include dividend yields, capital gains, price relative to intrinsic values, and foreign exchange considerations,
which were discussed in Module Four. Last, you will come to a conclusion about each market’s performance and assess risk versus return when comparing
investment vehicles within the different markets.
Specifically, the following critical elements must be addressed:
IV.
Risks and Returns. Use this section to analyze the risks and returns of different investment instruments in the U.S. and non-U.S. markets you selected.
You may find it helpful to use online brokerage aids or other tools in conducting this analysis. Specifically, you should:
A. Investment Instruments. Review stock, bond, mutual fund, and commodities performance in the two markets. Be sure to:
1. Analyze investment returns in each of the two markets, including dividend yields, capital gains, prices relative to intrinsic values, and
foreign exchange considerations associated with each of the instruments. Use relevant indicators and visual displays to help present your
findings.
2. Explain what your analysis of returns suggests about each market’s performance and how that might affect decisions on where to list.
Justify your response.
3. Compare and contrast how the different types of instruments move in the two markets over time, explaining the significance of this
information for decisions on where to list. Provide specific examples to support your answer. For example, have certain types of
instruments historically performed better in one market over another? Have certain types of instruments yielded higher returns more
quickly?
4. Assess the risks versus returns associated with the different types of investment instruments in the two markets. How might these tradeoffs affect listing decisions? Support your response with specific examples.
B. Interest and Inflation. Analyze how interest rates and inflation affect different investment instruments and investor decisions. Give specific
examples from the two markets selected to support your answer. For example, how do inflation and interest rates affect stock, bond, and mutual
fund returns in each market? How does that, in turn, affect business and individual short- and long-term investment planning?
C. Taxation. Would tax policies in the two markets make one a better option for IPO listing than the other? Why or why not? Give specific examples.
Guidelines for Submission: Your paper must be submitted as a 3- to 4-page Microsoft Word document with double spacing, 12-point Times New Roman font,
one-inch margins, and at least two sources cited in APA format.
Critical Elements
Risks and Returns:
Dividend
Risks and Returns:
Suggest
Proficient (100%)
Analyzes dividend yields, capital gains, prices
relative to intrinsic value, and foreign
exchange considerations associated with
instruments in markets selected, using
relevant indicators and visual displays
Determines what analysis of returns
suggests about each market’s performance
and effect on listing decisions, justifying
response
Needs Improvement (75%)
Analyzes specified investment returns in
markets selected, but does not use relevant
indicators and visual displays or analysis is
cursory or contains inaccuracies
Determines what analysis of returns
suggests about each market’s performance
and effect on listing decisions, justifying
response, but response contains inaccuracies
or omits key details
Risks and Returns: Types Compares and contrasts movement of
Compares and contrasts movement of
different instruments over time in selected
different instruments over time, explaining
markets, explaining significance for listing
significance for listing decisions and
decisions and providing specific examples
providing specific examples, but response is
cursory or contains inaccuracies, or
examples are not relevant
Risks and Returns:
Assesses risks versus returns trade-offs in
Assesses risks versus returns trade-offs and
Assess
selected markets and how these affect listing how these affect listing decisions, supported
decisions, supporting response with specific by examples, but response is cursory or
examples
contains inaccuracies, or examples are not
relevant
Risks and Returns:
Analyzes how interest rates and inflation
Analyzes how interest rates and inflation
Interest and Inflation affect different investment instruments and affect different instruments and investor
investor decisions, supported by specific
decisions, supported by examples, but
examples from two markets selected
examples do not cover both markets, are not
relevant, or response is cursory or contains
inaccuracies
Risks and Returns:
Assesses whether tax policies in the two
Assesses whether tax policies in the two
Taxation
markets make one a better option for IPO
markets make one a better option for IPO
listing than the other, justifying response
listing than the other, justifying response
with specific examples
with examples, but response contains
inaccuracies, omits key details, or examples
are not relevant
Not Evident (0%)
Does not analyze specified investment
returns in markets selected
Value
15
Does not determine what analysis of returns
suggests about each market’s performance
and effect on listing decisions, justifying
response
15
Does not compare and contrast movement
of different instruments over time in
selected markets, explaining significance for
listing decisions
15
Does not assess risks versus returns tradeoffs in selected markets and how these
affect listing decisions
15
Does not analyze how interest rates and
inflation affect different investment
instruments and investor decisions
15
Does not assess whether tax policies in the
two markets make one a better option for
IPO listing than the other, justifying response
with examples
15
Articulation of Response Submission has no major errors related to
citations, grammar, spelling, syntax, or
organization
Submission has multiple errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas
Submission has critical errors related to
citations, grammar, spelling, syntax, or
organization that prevent understanding of
ideas
Earned Total
10
100%
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Governance and Oversight
Governance and Oversight
A. Exchanges in the United States
The New York Stock Exchange (NYSE) is the world's largest stock exchange. It is a well-known
exchange, and most companies are likely to list their stock there have high expectations of being
accepted. The NYSE has a set of registration standards that must be met in order to be registered
on its marketplace. The NYSE considers each request to list company securities for exchanges
on its own grounds, as well, as its posting conditions are considered (Fontann& Howarth, 2021).
There are regulations, the NYSE has its own set of governance guidelines that must be followed
that include:•
Independent directors make up the majority of the board of directors of issuers.
•
Independent directors must meet stringent requirements to serve on the boards of issuing
firms.
•
Non-management directors have their own meetings on a regular basis.
•
Issuers have a nominating/corporate governance and remuneration committee, each of
which are made up completely of independent directors and has its own charter outlining
some basic roles and duties.
•
Issuers adopt corporate governance rules and codes of business behavior and ethics and
make them public.
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•
CEOs of issuing companies must confirm that they are in conformity with the NYSE
corporate governance listing guidelines and must notify the NYSE in writing if they are
not.
These requirements require the IPO business to have a majority of independent directors, and the
company will lose significant influence over its financial and operational management.
B. International Exchange
There are no worldwide stock exchanges that trade snowflakes. According to the official
website, all London Stock Exchange businesses are obliged by the London Stock Exchange's
laws and must follow them. The guidelines are established in a 100-page manual that spells out
the rules in great detail. Furthermore, the Financial Services and Markets Act 2000 (FSMA),
which replaced the Financial Services Act 1986 and took effect on December 1, 2001, governs
how investment operations are handled in the United Kingdom. The Financial Conduct Authority
(FCA) is the government entity in charge of enforcing the FSMA's accounting and finance rules.
This information is available on the London Stock Exchange Group's website under the
grievances section.
The European Securities and Markets Authority (ESMA) is the only supranational financial
regulatory agency with the power to develop legally enforceable technical standards, prohibit
securities market activity that is likely to exacerbate systemic risks, and launch fast-track
country-specific processes to guarantee that EU legislation is applied consistently. The ESMA
has the authority to initiate inquiries and propose that EU member countries collect evidence and
offer suggestions for future research.
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The rules for establishing on the London Stock Exchange differ markedly from those on the New
York Stock Exchange. They also have different sectors, as well as Premium and Standard
Segments, for enterprises of various sizes and trade volumes. This market has its own listing
regulations in addition to the many market options. On their "Listing Regime and Obligations"
website, for example, they state that "inside information should be given as soon as feasible, and
an annual report should be published. The Model Code limits directors' transactions in the
remaining stock on their own account at specific periods and supervises the authorization
procedure as well as the method and scheduling of such transactions at all other times, it adds
(Fontan, & Howarth, 2021). Nevertheless, it introduces a new regulatory authority with which to
comply. As a result, large additional internal costs are incurred.
C. Multiple Markets
Although listing on several markets incurs additional costs, Snowfloke's total capacity to raise
finance globally may be enhanced as a result. With currency exchange rates continually
fluctuating, being able to raise and maintain funds in international markets can be a useful asset.
Finance is required for a company's value creation. Entering one of our markets will help you
gain access to London's huge pool of investment capital, whether you want to raise money right
away or later (Moradi et al., 2021). By joining one of the London Stock Exchange's
marketplaces, your company will get greater access to financing, a higher worldwide profile, and
liquidity. Furthermore, there are instances when using these worldwide platforms to raise this
additional capital is advantageous due to interest rates and/or currency valuations.
D. Interest Rate Policies
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The Federal Reserve System (FOMC) is the recognized central bank of the United States, and it
oversees our financial system. Their mission is defined on their online webpage,
www.federalreserve.gov. The Federal Reserve manages the level of short-term lending rates and
influences the total affordability of money in the economy to execute monetary policy. Shortterm interest rates are directly influenced by monetary policy; longer-term interest rates,
currency exchange rates, and the prices of stocks and other investments, as well as wealth, are
influenced indirectly by monetary policy. Exchange rates affect consumer spending, economic
activity, manufacturing, unemployment, and the rate of inflation through these channels. The
FOMC accomplishes this by moving the federal funds rate upward or downward, based on their
economic change objective. Overall, adjustments to the FOMC's goal for the Federal Reserve
have a number of effects on overall financial conditions. For example, adjustments in the federal
funds rate are quickly reflected in the interest rates that banks (Aronovich et al., 2021).
The European Central Bank (ECB) functions similarly to the FOMC, with the exception that it
strives for economic balance throughout the European Union as a whole. The ECB's objective is
to enable velocity of the pass-through of adjustments in international prices to the financial
sector and the overall economy, and also movements between direct and indirect finance. They're
also necessary for assessing financial stability and integration (Aronovich, et al., 2021). Investors
may be persuaded to move funds from their savings accounts to the equity stock market if
interest rates rise. Lower rates could also help to boost the economy by enabling firms to borrow
money for capital advancement and innovation. IPOs are more common and effective during
economic downturns because the stock market is often performing well at this time.
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References
Aronovich, A., Dobrev, D., & Meldrum, A. (2021). The Treasury Market Flash Event of
February 25, 2021. FEDS Notes, (2021-05), 14.
Indraswono, C. (2021). Traditional and Modern Analysis Performance Indicators: Evidence from
New York Stock Exchange.
Fontan, C., & Howarth, D. (2021). The European Central Bank and the German Constitutional
Court: Police Patrols and Fire Alarms. Politics and Governance, 9(2), 241-251.
Moradi, M., Jabbari Nooghabi, M., & Rounaghi, M. M. (2021). Investigation of fractal market
hypothesis and forecasting time series stock returns for Tehran Stock Exchange and
London Stock Exchange. International Journal of Finance & Economics, 26(1), 662-678.
Teall, J. L. (2018). Financial trading and investing. London, United Kingdom: Academic Press.
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Macroeconomic Environment
Macroeconomic Environment
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Macroeconomic Environment
Macroeconomics is the study of how the economy functions as a whole, or the big
picture. Entrepreneurs use characteristics such as GDP, inflation, market forces, economic
models, and currency fluctuations and trade when planning or predicting developments in
various markets. Various factors are examined in macroeconomics in order to create models that
explain the interactions between these factors.
Boom and Bust Cycle
The economic cycle, commonly known as the boom and bust cycle, is defined as the
overlapping stages of contraction and expansion (Amadeo, 2018, para.1). In periods of economic
expansion or surge, the economy thrives, with large growth in gross domestic product (GDP) and
strong dividend income. It precedes a bull run, rising home values, income growth, and higher
employment rates over the course of a bubble (Amadeo, 2018, para.2). Low interest rates make it
simpler to acquire credit from a creditor or bank, which can subsequently be used to buy stocks,
real estate, or other financial products. Renewed confidence adds to more turbulent markets
growing in tandem with the economy, as well as strong investment returns. Malinvestment
happens when borrowing becomes too easy to obtain and interest rates are too low. When
interest rates go up, traders sell their stocks and buy safer alternatives like bonds, which starts the
bust cycle. The economic depression of 2008 was an amazing illustration of how job expansion
and then shortages impacted individual markets. After the terrorist attacks in 2001, interest rates
were low, which encouraged people to buy homes, resulting in rising property prices. Mortgage
borrowers were unable to make payments when interest rates rose in tandem with the fed funds
rate. This had such a broad impact across all markets, with banks ceasing all lending, even to
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their rivals, and the entire housing market collapsing, kicking off a recession. The financial
markets were thrown into chaos when Lehman Brothers declared bankruptcy in 2008.
Social and Political Climate
Various situations and occurrences, such as military conflict, environmental catastrophes,
terrorist attacks, and political action, have an impact on market performance. As the economy
became increasingly shaky after the 9/11 attack, investors became less interested in dealing and
concentrated more on low-risk bonds and equities. Following the news of war, traders were more
likely to buy stocks of firms that provide military weapons parts and technologies, as there would
be a significant demand for their products, prompting stock prices to rise. Every four years, the
nation's monetary policies undergo a shift in ideology. Investors can perceive campaigns as an
isolated case of a significant political upheaval, which often translates into more volatility in a
nation's currency value (Lioudis, 2019, para.3).
Interest rates
Interest rates and inflation are both elements that influence the market's performance. As
interest rates rise, the Federal Reserve aims for a 2% annual increase in inflation, which reduces
supply and demand for goods and services as spending falls. This subsequently has an impact on
companies, as consumers cut back on their spending, forcing enterprises to lay off workers or
close entirely, resulting in a rise in the unemployment rate. This results in a downturn,
depression, or bust in the economy. Rising interest rates influence stocks, money market funds,
and commodity markets because of the higher risk and reduced return, whereas securities keep
improving because of the higher yield and reduced risk. Lower interest rates cause When interest
4
rates are low, people spend more money on products and services, causing an increase in supply
and demand. Organizations can seek loans more freely for expansion, resulting in more profits.
When interest rates go too low, however, banks become more hesitant to make loans because
they do not see a way to profit from them. When interest rates are low, banks lose money
because businesses have more money in their pockets and don't need as many loans.
Financial Instruments
In reaction to various macroeconomic situations, all financial products carry a certain
level of risk. Long-term stocks and bonds issued by a company, states, or other entities are
referred to as bonds (Teall, 2013). Bonds often produce a higher return at a reduced price in a
robust or flourishing economy. Bonds have a direct relationship with the country's economic
interest rates. Borrowing costs fall in a bad economic climate or during a recession, which is
done through lower interest rates. Bonds and equities have an inverse relationship with interest
rates. An increase in one causes the other to decrease. During an inflationary period, a firm's
initial public offering (IPO) may result in a rise in listings, whereas during a downturn, the
number of IPOs decreases as the economy deteriorates. Investments in an initial public offering
(IPO) can be hazardous and unpredictable because there is no monetary background to assess
and just the alternative of looking at large organizations. Researching an organization to see if
it's a sound investment and what the future holds is one thing that can make a corporation's IPO
succeed.
5
References
Amadeo, K. (2018, August 23). 28 Booms and Busts Since 1929. Retrieved from
https://www.thebalance.com/boom-and-bust-cycle-causes-and-history-3305803
Kenton, W. (2019, March 27). Boom And Bust Cycle. Retrieved from
https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp
Lioudis, N. K. (2019, March 12). How global events affect the forex market. Retrieved from
https://www.investopedia.com/articles/forex/11/international-events-affect-forex.asp
Teall, J. L. (2013). Financial Trading and Investing. Elsevier Science.
Running head: SNOWFLAKES INITIAL PUBLIC OFFERING
Snowflakes Initial Public Offering
1
SNOWFLAKES INITIAL PUBLIC OFFERING
2
Snowflakes Initial Public Offering
Almost two years ago, most companies went public despite the outbreak of the COVID-19
disease across the globe. In 2020, one of the companies that went public most in the USA is the
Snowflake. The company was founded in Bozeman, Montana, in 2012 (Martin, 2020). It is a
cloud computing and data warehousing company built on Amazon Web Services or Microsoft
Azure cloud infrastructure. Snowflake offers cloud-based data storage and analytics services and
can be termed as data warehouse-as-a-service. Corporate users store and analyze data using
cloud-based hardware and software. Examples of companies using Snowflakes are GEICO,
Salesforce, Microsoft, and US Foods.
The main feature in the principal global organized exchanges is the electronic exchange.
Most stock exchanges are offering investors electronic platforms to invest their capital. Through
the New York Stock Exchange (NYSE), Snowflakes’ investors buy their shares whose interests
are high in the company. Apart from NYSE, Snowflakes could choose NASDAQ as an
alternative stock exchange. In NASDAQ, buyers and sellers are connected by computers over
telecommunications networks. Dealers carry their inventory stock and stand ready to purchase
and market stocks in the NASDAQ. The dealers are required to post their bids and ask for prices.
However, the number of investors in Snowflake has been growing significantly with NYSE,
especially since February 2020 (Bursztynsky, 2020). Thus the company has been able to go
head-to-head with more established veterans like Google, Amazon, IBM, Oracle, and Microsoft.
All these firms have adopted electronic exchanges to tap investors across the globe.
Both NYSE and NASDAQ have threshold requirements that a company must meet
before its stock is marketed by one of these exchanges. The standards are common for the two
exchanges and include meeting the minimum number of years of operating history, initial stock
SNOWFLAKES INITIAL PUBLIC OFFERING
3
price criteria, and a minimum earnings threshold (Kumar et al., 2018). For example, a stock must
maintain a $4 minimum price, and failure to maintain this minimum leads to a company being
de-listed to an over-the-counter (OTC) market.
The major difference between NYSE and Nasdaq exchanges is that NYSE operates like
an auction market that uses specialists or designated market makers (MMs), while Nasdaq is a
dealer market with numerous MMs who compete amongst themselves (Dang et al., 2018).
Therefore the main difference is how market participants interact in their stock exchange
business. In the NYSE auction method, market participants directly buy and sell from each other,
and thus competitive bids characterize these exchanges. In the dealer model of NASDAQ,
market participants transact via a dealer known as market makers. These market-makers could be
a brokerage firm or a bank that matches buyers and sellers.
Snowflake had an incredible performance in its stocks rally between February and
September 2020. As of mid-September 2020, Snowflake shares surged more than 111% in the
NYSE. This surge was the largest ever software IPO in the USA. The stock began trading at
$245 per share and closed at $253.93 (Bursztynsky, 2020). Snowflake's valuation grew five
times between February and September-the company was worth $12.4 billion in valuations in
February and $70.4 billion in September. The growth rate of the IPO was an influence of the
services provided by the company. Snowflake competes with the major public cloud vendors by
providing technical services that allow clients to analyze and share substantive data quickly.
They also increase capacity as needed instead of relying on databases that are tied to hardware.
Hence numerous investors have gained confidence in the company.
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References
Bursztynsky, J. (September 16, 2020). Snowflake more than doubles in market debut, largest
ever software IPO. Retrieved on July 8, 2021 from
https://www.cnbc.com/2020/09/16/snowflake-snow-opening-trading-on-the-nyse.html
Dang, V. A., Michayluk, D., & Pham, T. P. (2018). The curious case of changes in trading
dynamics: When firms switch from NYSE to NASDAQ. Journal of Financial
Markets, 41, 17-35.
Kumar, G., Jain, S., & Singh, U. P. (2020). Stock market forecasting using computational
intelligence: A survey. Archives of Computational Methods in Engineering, 1-33.
Martin, J. B. (2020). Snowflake Bentley. Houghton Mifflin Harcourt.
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