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Chapter 4. International Economic Indicators: Why Are They So Important?

Chapter 4. International Economic Indicators: Why Are They So Important?

U.S. economic indicators help us understand what is happening in the domestic economy. However, being a successful investor or an effective corporate leader in today's highly integrated global economy requires a knowledge of what is going on beyond U.S. borders too. A CEO who wants to sell products overseas or an investor who seeks to achieve higher returns on stocks and bonds should be familiar with indicators that gauge the health of foreign economies.

Why place so much emphasis on the international business climate? For one, the performance of U.S. corporate profits, stocks and bonds, and the dollar is affected by foreign developments more than ever before. A recession in Europe harms not only companies on that continent, but many U.S.-based firms as well. Close to half of the earnings of S&P 500 firms originate from sales outside the U.S. Moreover, it just makes good business sense to be aware of new opportunities that become available in markets outside the U.S. By diversifying into Europe, Asia, and Latin America, one is no longer bound to the economic swings of just one country. Indeed, there is much fertile territory to choose from in other markets. Equity investors, for example, can pick from more than 40,000 public companies that are listed on world stock exchanges, two-thirds of which are outside the U.S.


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