Exchange-Trade Fund and the Currency TUR - Essay Example

Exchange-trade Fund An exchange-traded fund (ETF) refers to an investment fund that is majorly traded on stock exchange market just like many other stocks. An ETF is in hold of assets such as commodities, bonds, trades and stocks that are closer to the net value of the assets in the progress of trading day. Most ETFs tend to track an index that includes bond index or stock index. ETFs might be attractive in a way as forms of investments, simply because of their lower costs, stock-like features and tax efficiency. They are generally the most common and active forms of the exchange-traded products (Wiandt, Jim, et.al. 26). This is mainly due to its market flexibility and vulnerability. The authorized participants, comprising of large broker-dealers which have ensued various agreements with exchange-traded funds distributor, are basically engaged in buying or selling of ETF shares directly to or from the ETF. According to (Todd Lofton, 37), this can also occur in creation units, which comprise of large segments of several ETF shares that are normally exchanged duly with baskets of underlying securities. Usually, the eligible participants may opt for long-term investment in ETF shares mainly due to its high return rates and global recognition. Indeed, they tend to play a bigger role in market making on the open markets, mainly through the utilisation of their ability towards exchanging the creation segments with their varying forms of securities. This hence provides a wide range of ETF liquidity in terms of its shares, thus assisting in ensuring that the net asset value of all the underlying assets are approximates of their intraday market pricing values. An ETF on the other hand tend to combine the valuation aspect of a unit investment trust or a mutual fund, which can either be sold or bought at the closing stages of each and every trading day. Trading can be rated in terms of net asset worth, with the tradability element of a closed-end stock, which trades all along the trading period at prices that might seem to be less or more than its general asset value. Closed-end funds are not normally considered as ETFs, although they are certified funds and should be transacted on exchange basis (Todd Lofton, 39). So, ETFs have generally been in existence in US since 1993. ETFs customarily have been in form of index funds till 2008 when the U.S. Securities and Exchange Commission authorized the establishment of actively managed exchange-traded funds. The value of Turkish currency (TUR) versus the US dollar has got a little variation. For the past five years the rate of US dollar versus the Turkish Lira has remained at an almost constant rate of 1.00 USD being equivalent to 2.23651 TRY. This little variation is mainly due to the fact that the Turkish economy is currently considered as one of the most emerging global economies. Both the US and the Turkish economies seem to be growing at a higher rate, though the US economy is at a much higher level. This is due to the fact that there is massive action towards forward guidance, credit easing, and the simulative fiscal policies with policy mix whereby many conservatives decry as being the ultimate lead to an inevitable higher inflation. This is simply what has made US to thrive well as compared to other economies such as the Turkish. As an emerging economy, Turkey has got various notable Exchange –trade funds. Some of these ETFs includes; Dow Jones Istanbul 20 (DJIST) considered as the first exchange-traded fund, Non-Financial Istanbul 20 (NFIST) which is considered as the secure sector Turkish ETF, Smaller Companies Istanbul 25 (SMIST) which is a first style Turkish ETF, Istanbul GOLD ETF (GODIST) that is traded with regard to gram indistinguishable shares, and even FTSE Istanbul Bond ETF (FBIST) that is considered as the first firm remuneration both in Turkey and the entire Europe. The most explored exchange trade fund in Turkey is the DJIST since it allows investors to acquire proper exposure to the major and most liquid blue-chips that are listed on Borsa Istanbul. DJIST ETF can be transacted on the Istanbul Bond exchange (BIST) just like other stocks and can even be sold and bought through any brokerage house or licensed bank (Todd Lofton, 35). DJIST shares are easily obtained through the BIST. This has mainly been due to the fact that there are well set protocols that are meant to ease the transaction. The other factor is that, it is considered as the first and leading Turkish Exchange-traded Fund. Institutional investors are also in a position of creating or redeeming their stock through Taka-bank system, whereby stocks are readily converted into the respective cash transit. This is a form of exchange-trade fund that is mainly based on a valuable liquid indicator that can enhance proper executions even if there are infrequent trades within ETF itself. DJIST also offers the institutional investors with the sole ability of acquiring exposure to the entire Capital Markets of Turkey just with single transaction. On this note, DJIST has got 20 largest liquid stocks all in the BIST. On the other hand, (Todd Lofton, 37) expounds on the claim that DJIST tend to offer diversification since it consists of the prevalent and most liquid Turkish blue-chips that are easy to trade with. Dow Jones Istanbul 20 ETF hence plays a role of minimizing the risks and uncertainties that are imposed by single stocks. It makes company risks as well as liquidity to be more manageable. This is because it can be used in diversification of the entire form of portfolio and/or comprehensive investment policy as a major holding.   DJIST also tend to allow investors allow the investors to venture in 20 stocks once and for all instead of just investing in a single stock thereby reducing more risks and uncertainties, hence initiating higher stock market returns in. In addition to this, this Turkish exchange traded fund tend to uphold transparency to a greater extent. This is due to the fact that, it’s trading trend is subject to publication on its extensive website every trading day, hence enabling investors to efficiently keep track of their daily investments (David Lerman, 54). This trading portfolio or trend has to do with the market exchange of TUR against other global currencies, including the Dollar. Finally, the aspect of continuous pricing of its shares on the BIST has led to the success of DJIST. Intraday NAV also tend to be issued by the manager almost every 15 seconds of BIST trading hours. This hence allows investor to amass intra-day liquidity. Efficient and effective intra-day pricing ensures reduced deviation from the fund’s Net Asset Value. Compared to other global economies of the developing or emerging economies, the Turkish economy seem to be booming in relation to exchange value with some of the leading currencies, for instance, the US dollar (Todd Lofton, 46). So, for the past five years or so, the Turkish Lira has tried to maintain its constant rate against the US dollar ranging between 1.978 and around 2.456. From the analysis, this has been mainly boosted by its emerging trends in terms of the virility of its exchange-traded funds (ETFs) in the stock and money market. Being the most efficient and effective investment funds that can hold assets such as stocks, bonds, or commodities, and being traded on stock exchanges; exchange-traded fund (ETF) has been very attractive to investments simply because of their tax efficiency and low costs that has currently made them more popular and lucrative in nature. From our study above touching on the Turkish Lira against the US currency, the main factors that had to be considered in terms of such valuation had to do with this aspect of exchange-traded funds. This is simply because they are the main determinants of the country’s currency value, and the global recognition. Though, regardless of the efforts that are being exerted by Turkey, the US currency has still maintained its value since they have also got well established stock and money market systems. Work Cited David Lerman. Exchange Traded funds E-mini stock index futures. New York. John Wiley and sons, 2001. Jim Wiandt. Investment and Securities. New York; Chichester: Wiley, 2001. Todd Lofton. Getting started in exchange. Wiley, 2007. Wiandt, Jim, and Will McClatchy. Exchange Traded Funds. New York: Wiley, 2001. Internet resource. Read More