Which is in relative terms more efficient, international diversification across countries or across business sectors ?

Expert Solution

An initiative to reduce the risk involved in investing in one or more nations is known as international diversification. It minimises the risk of loss one can bear while one investment performing poorly over a specific period, any other investment may work better in the same time period, minimising the losses of the investment from concentrating on all the capital under one type of investment.

By diversifying across the countries whose economic growth is not perfectly correlated, investors then can reduce the variability of the returns. Some investing countries believe in preservation of capital which saves the further savings. Diversifying helps in the situation of failure of investment by not relying upon one source of income only. Diversification surely helps the international investments which nations do amongst one another, by reducing the risk involved on a comparatively large scale when comes to international boundaries.

Investments for business entities are majorly affected by the domestic events and several changes in economic factors, exchange rates and investment rates. Diversification helps the entity to make a portfolio with comparatively lesser risk involved or it may contain unnecessary risks. When the entity has to deal with the domestic as well as international market, the risk getting involved is much more.

Rahul Sunny answered 2 years ago

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