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Investing in foreign markets

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Dr. Washington had 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. Washington as a formal research paper:
ââ?¬¢ Foreign investments and portfolio diversification
ââ?¬¢ Reasons to invest internationally
ââ?¬¢ International investment risks
ââ?¬¢ International investment mediums

You must provide examples of these concepts using at least two articles from the Library's full-text database. These are a few examples for article topics:
ââ?¬¢ four Asian tigers
ââ?¬¢ China's national image transformation
ââ?¬¢ government realignment

The paper must include all necessary in-text citations as well as a complete reference list formatted in APA.

Assignment Guidelines:
ââ?¬¢ Research the four international investment concepts listed in the Assignment Description.
ââ?¬¢ Find at least two articles in the Library's full-text database that provide examples for two of the concepts.
ââ?¬¢ Write a formal research paper for Dr. Washington that answers the following questions:
o What is portfolio diversification? Explain.
ïâ??§ Why are foreign investments effective at diversifying a portfolio?
o What are the main reasons to invest in international markets? Explain.
o What are the major risks associated with investing internationally?
o What are the various methods for investing in an international market?
ââ?¬¢ Compile your answers into a single Word document.
o Provide in-text citations and a complete reference list in APA format.

ââ?¬¢ A 3-4 page, double-spaced research paper that explains the four concepts of international investments listed in the Assignment Description
o At least two articles from the Library's full-text database must be used within your paper
o A complete reference list in APA format must be submitted along with your research paper

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Solution Summary

Dr. Washington had 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. Washington as a formal research paper:
ââ?¬¢ Foreign investments and portfolio diversification
ââ?¬¢ Reasons to invest internationally
ââ?¬¢ International investment risks
ââ?¬¢ International investment mediums

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What is portfolio diversification? Explain.

There is a very famous saying- "Don't put all eggs in one basket". Portfolio diversification is exactly based on this phenomenon, ie, do not put all investments in one asset class and diversify your portfolio to minimize or eliminate risk exposure to one particular asset class such as stocks, commodities, derivatives, bonds, etc. A well diversified portfolio allows an investor to mitigate or eliminate risks in a particular asset class, such as company specific risk by investing in a particular stock, minimize the impact of poor performance in a particular asset class such as commodities like gold and silver and thus, provides cushion to different types of risks in the investment portfolio of the investor.

The portfolio diversification involves allocating the funds to different asset classes as per the investment objective, risk appetitite and market conditions. As a portfolio becomes well diversified via investing across several asset classes, specific risks are minimize and the investor only faces the market or systematic risk, which itself is reduced by making the portfolio as diverse as possible. Further, portfolio diversification moderates the impact of negative performance in a specific asset class and thus, protects the investor from severe decline in the value of one asset class as the poor performing asset is only a small portion of the overall portfolio.

The number of asset classes that are required for developing a well diversified portfolio is dependent on the degree of correlation between the different ...

Solution provided by:
Sheetal Jain, PGDM
Education
  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
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