For Teachers: Lessons on International Diversification

Seeking portfolio gains from economic growth overseas? Here's what you need to know about ADRs and ETFs.
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The Week in Review is provided by The Stock Market Game, which is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.

The Stock Market Game Week in Review: Apr. 14-18

Last week on Wall Street saw its share of good news and bad news. We'll start with the good news.

With the release of

Google's

(GOOG) - Get Report

news of a first-quarter profit after Thursday's

Apr. 17 markets closed, U.S. stocks rose Friday. Google adjusted its online advertising formula and accelerated its growth outside the United States, producing the gain that surpassed

analysts' predictions and alleviated some of the economic worries battering the stock this year.

The Internet search king stated it earned $1.31 billion, or $4.12 per share, during the first three months of the year, which is a 30% increase over its first quarter of 2007. Shares climbed 20% to $539.41, their first time above $500 since February.

Unfortunately, trying times continue for the

financial sector

as

Merrill Lynch

(MER)

, the world's largest brokerage house announced on Thursday it would cut another 4,000 jobs.

Merrill Lynch's job cuts come on the heels of a quarter in which the firm reported its third straight quarterly loss and recorded more than $6.5 billion in write-downs on subprime mortgages and other risky

assets. According to its CEO, John Thain, the former head of the

New York Stock Exchange

, things are unlikely to improve in the next couple of quarters. He stated, "This was about as difficult a quarter as I've seen in my 30 years on Wall Street."

Citigroup

(C) - Get Report

also reported a sizeable first-quarter loss of $5.1 billion, $12 billion in write downs and plans to cut close to 9,000 jobs. However, the loss was lower than analysts had anticipated. Both Citi's and Merrill's shares had closed higher at the end of Friday's session, reflecting investor confidence that the companies will weather the storm.

While we realize this has been a tough semester for Stock Market Game (SMG) students to see significant gains in their portfolios, students may be interested in checking out the following articles posted recently on

TheStreet.com

, "

Investing in China: What You Need To Know

" and "

How To Make International Plays Without Getting Played

". Both stress the importance of international

diversification with a specific focus on China.

Also, you may want to take a look at Chinese construction companies which are highlighted in the current issue of

Business Week

, as they are expanding and set to build Europe's tallest building -- the 93-story Federation Tower in Moscow.

As discussed in the second

TheStreet.com

article, you may be interested in introducing your students to ADRs and ETFs. What are they? When a company based overseas wants to sell shares of its stock to investors in the United States, it does so through American Depositary Receipts (

ADRs), which are available on the major

exchanges and through the SMG.

International diversification is further enhanced through exchange-traded funds (

ETFs). ETFs can track a particular

index or

sector and seeks to replicate its performance by owning the securities that make up the index or sector, no matter how broad or narrow a segment of the market it may be.

For additional information about ETFs, you can view the

Stock Talk

edition titled "Emily & ETF." The issue also explains how ETFs differ from

mutual funds as well as introduces its readers to Spiders, Vipers and Diamonds. The newsletter is accessible on the

SMG Web site

in the Publications section of the

Teacher Support Center

.

To learn more about The Stock Market Game, go to www.stockmarketgame.org.

This article was written by a staff member of The Stock Market Game.