Diversification of an International Portfolio
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Analyze effects of international portfolio diversification on an investment portfolio.
Examine alternative investment vehicles.
Explain how derivative securities may further enhance a portfolio's performance.
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The solution gives 651 words on international portfolio diversification, alternate investment vehicles and derivative securities with 8 references.
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Analyze effects of international portfolio diversification on an investment portfolio.
There are several benefits of international portfolio diversification on an investment portfolio. The benefits are in terms of higher returns from the perspective of investing abroad. These benefits are obtained from investing outside the region of the home country. The international diversification benefits are the highest when the countries where investment is made have a high country risk. However, the international portfolio diversification effects (benefits) vary over time as the country risk changes. In general, international portfolio diversification benefits have declined over most countries during the past fifteen years.
Apart from the benefit of earning more returns, international portfolio diversification brings benefits from existing expertise, knowledge of investing, and research and development. The greatest advantage of international portfolio diversification is to reduce the risk of investment through international diversification. The investor is no longer dependent on a single investment market.
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