Question

List the different instruments through which a domestic investor can diversify its portfolio internationally.

Answer 1

Combination of various assets that earns the highest return for the least risk is called portfolio diversification.Mixture of stocks,commodities and fixed income is requirement of diversified portfolio.In this case when the value of one rises value of other falls.

For minimizing their risk and maximizing their return domestic investor can invest in following international instruments:

a.invest in US Stock-domestic investor can diversify its portfolio internationally by investing US Stock companies of different size,which is Large -cap,Mid-cap and small cap.

b.Invest in commodities-domestic investor can diversify its portfolio internationally by investing in commodities,which include gold,crude oil etc.People invest in gold becuse the price of gold always increases after down for sometime.

C.Derivative market-a domestic investor can diversify its portfolio internationally.by Making Forward contract,Future contract,using swap,call option and put option.

d.Foreign stocks-Apart from US Stock a domestic investor can also invest in overseas stock to minimize their risk and maximizing their return.

e.Invest in equity-a domestic investor can diversify its portfolio internationally.by investing in equity of foreign company,

f.Invest in US Bonds-a domestic investor can diversify its portfolio internationally.by investing in US Municipal Bonds,Saving Bonds,Junk Bonds,Corporate Bonds etc.