Question

Which of the following statements is incorrect regarding international diversification?

Group of answer choices

A.International diversification across equities fails during market downturns.

B.International diversification across sectors or across markets provides similar improvement in the efficient frontier.

C.International diversification should consider the type and weighting of industry sectors in each market.

D.International diversification leads to better improvements in the efficient frontier for investors in developing economies than for investors in developed economies.

E.International diversification improves the efficient frontier for investors in both developed and developing economies.

Answer 1

a. This statement is true. The international diversification refers to diversify the business and make investment globally. The market downturns refer to stock market fall. And the investment assets includes bonds, stocks, shares, commodities etc. Therefore, loss in stock market internationally will leads to failure of international diversification benefits to the equities.

For example: US economies will not investment in the assets of japan which is having depressing stock market conditions. But the businesses from japan will diversify the activities in USA because US have boom stock market period.

b. This statement is right. The frontier market refers to the economies which are on the path of development but are not considered to be emerging markets. Such economies have higher investment risk. Therefore, international diversification improves the working of different sectors in these frontier markets. There are major sectors which get the benefits of international diversification.

c. This statement is right. International diversification should consider the industrial sector types. Because the impact of industrial investment is great on the diversification of industries.

The types and weighting of industrial sector in all the markets are necessary to consider as it an effective tool for improving the economies and markets across the economies.

d. This statement is right. The international diversification stimulates the investors to invest in the stocks internationally in the economies which are fast-developing than the developed countries.

This statement states that the diversification seeks improvement in all the segments, but the main improvement is for developing countries than the developed countries.

e. This statement is incorrect. The developing countries frontier markets get more benefits of such diversification than the developed economy. the international diversification may appeal the investors from different economies to invest in the stocks of the fast-developing economies.