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Fin 402 Wk 5 Ind Help

In: Business and Management

Submitted By bhsgirl
Words 693
Pages 3
To create a portfolio, investors must invest in different assets, possibly in different countries. As learned from a team project, a well diversified investment must have different types of securities and possibly have investments located in different countries. It can help to reduce the risk as compared to the asset investment, also known as taking stand alone risk, in their domestic country. The risk minimizes because there is a difference that exists in the economic growth. Because of this diversification, a fall in one country gets rewarded with the rise in the other country. There are two main effects of international portfolio diversification on the investment portfolio on is the risk and the return. The international portfolio diversification is the best and effective way to achieve higher risk-adjusted returns than domestic investment alone here the investor gets the best return at the lowest level of risk he or she can afford. This is done through investment in various markets of different countries. The international portfolio diversification facilitates the risk sharing among different global investors and du to this a country even gets diversified of its own risk. So one can say that not only the investors but also due to the international portfolio diversification strategy even the country gets diversified investors and due to this the risk level within the country gets minimized. Here the idiosyncratic shocks of the country may be diversified away due to different investors from different countries. The risks that get diversified through international portfolio diversification are exchange rate risk, country risk, political risk, and the default risk in each country. The investor will minimize this risk once it invests in an internationally diversified portfolio. Apart from this due to the economies of scale an investor can reduce its...

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