I need some assistance on the following questions.
Does international diversification enhance risk reduction? Why or why not?
What measures can be taken to reduce the risks of international portfolio investing?
Risk is the probability of having losses. International diversification will reduce the unsystematic risk related to a particular country. As discussed in the previous response with you, Systematic Risk means the risk inherent to the entire market or entire market segment. This is also known as "un-diversifiable risk" or "market risk." Hence systematic risk represents the uncertainty related to overall market. On the other hand unsystematic risk is a company or industry or economic specific risk that is inherent in each investment. Thus unsystematic risk is unique risk of the company or to the industry or economy. (Investopedia, 2009) Hence by diversification the risk related to a particular economy will get reduced. Measures taken to reduce the risk can be:
1) A futures contract is a type of derivative instrument, or financial contract, in which two ...
Response describes the measures to reduce risks in international porfolios