Question

It is prudent for the portfolio manager to engage international portfolio diversification”. In terms of this statement, demonstrate how international portfolio diversification can improve portfolio performance, taking into account the inherent risks involved.Subject is Investment

Answer 1

It is prudent for portfolio manager to engage into the international portfolio diversification as International portfolio diversification will be helpful in improving the performance of the portfolio because-

A. It would be helpful in providing an additional advantage through gain of exchange rates fluctuations.

B. It will also be providing an additional advantage of better cost allocation as the cost of generation of fund will be different in different countries.

C. It will also be helpful in gaining through changes in macroeconomic factors of different countries like inflation and interest rate

D. It will also be helpful for the the investor in order to generate a higher risk adjusted return.

E. It will also be helpful in avoiding the concentration of risk into one region and spreading the risk into different zones of the globe.

F.it will also hedge through political uncertainty of one country by having an international diversification.