International Portfolio Diversification
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Does international diversification enhance risk reduction? Why or why not? What measures can be taken to reduce the risks of international portfolio investing?
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Solution Summary
The solution describes whether diversification enhances risk reduction in a foreign investment portfolio.
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International diversification can, in fact, enhance risk reduction so long as two principals are strictly adhered to: 1) the diversification must be such that sufficient dissimilar nations are invested in and that the industries within these nations are diversely invested as well. For example, one cannot invest in oil in the US, Japan, and U.A.E and expect that the portfolio is diversified. Instead, investing in construction in the US, technology in Japan, ...
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