Question

Dr. Bueller recently overheard a few of his colleagues discussing possible investments in the international marketplace. Wanting to explore all of his potential investment options, he has asked you to explain the various aspects of investing in foreign markets. Your job is to research the following concepts and present your explanations to Dr. Bueller as a formal research paper: Foreign investments and portfolio diversification Reasons to invest internationally International investment risks International investment mediums You must provide examples of these concepts using at least 5 peer-reviewed articles from the Library's full-text database. The articles selected must be appropriate, support your explanations, and be acknowledged. The paper must include all necessary in-text citations as well as a complete reference list formatted in APA. Assignment Guidelines Research the 4 international investment concepts listed in the Assignment Description. Find at least 5 articles in the Library's full-text database that provide examples for 2 of the concepts. Write a formal research paper for Dr. Bueller that answers the following questions: What is portfolio diversification? Explain. Why are foreign investments effective at diversifying a portfolio? Explain. What are the main reasons to invest in international markets? Explain. What are the major risks associated with investing internationally? Explain their potential impact on an investment portfolio. What are the various methods for investing in an international market? Explain how these can be used to address portfolio risk. Compile your answers into a single Word document. paper that explains the four concepts of international investments listed in the Assignment

Answer 1

Portfolio Diversification is a technique of allocating money in different securities, industries or different asset classes in order to reduce the risk of investing. Portfolio diversification cant eliminate 100% risk but it can be used as an effective technique to reduce risk.

Foreign investments are effective at diversifying a portfolio because of the following reasons:

Investors who have foreign exposure can get credit in foreign currencies easily and it can be beneficial if the credit in domestic countries is expensive and by taking credit on cheaper terms investors can invest in different asset classes at lower cost.

Investors may also benefit if the exchange rate of the country in which he has invested appreciates and this can lead to effectively diversifying a portfolio.

Main reasons to invest in international markets are as follows:

Provides reduction of risk, suppose you in invest in equity market of your home country and also in equity markets of foreign countries. If the stock market in your country doesn't perform well, its negative impact can be offset if foreign equities performs well.

Sometimes your home country includes stock having large market capitalization, by investing globally one can get access to mid and small cap stocks.

One can also also benefit through exchange rate movements by investing globally. For example in the future you think that the currency of a particular country will appreciate in the future, by investing in that currency one can gain if that currency in the future appreciates.

Major risks associated with investing internationally are as follows:

An investor who invest globally might not have sufficient information about the companies he likes to invest as compared the investors who resides in that country.

Because if various taxes and other cost involved in international investing, it might be costly to invest in markets globally.

International investing might become a problem due to political uncertainties, trade wars that might happen in the country you have invested in.

Some countries also limits the amount of investing that can be done by the investor in another country

Also the last but not the least risk can be liquidity issues that can be prevailing in the market in which you are investing in.

Various methods for investing in an international market are as follows:

American depository receipts (ADRs)

Global depository receipts (GDR)

Foreign direct investing

Mutual funds

Exchange-traded funds

Multinational corporations

In conclusion we can say that regardless of any of the above methods explained, one should keep in mind that there is no single diversification model that will meet the need of investor. It depends on investors personal time horizon, risk tolerance, investment goals and other factors that induces him to select particular diversification method.