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The benefits of international portfolio investment
Finance & Accounting
Pages 10 (2510 words)
International Portfolio Investment Introduction In recent years, the dependence of world economies on each other has increased significantly due to globalization. The economies are not involved in cross border exchange of goods and services but also of financial transactions.
International portfolio investment is a term used to define investment done in different economies worldwide. (Santis & Ehling, 2007) The benefits of international portfolio are evident as it allows countries to diversify the risk, hedge and participate in growing economies. However, there are risks or potential disadvantages that are involved with international portfolio investment. These risks include institutional constraints, exchange rate policy, interest rate policy, tax rates and investment policy. These benefits and risks are mentioned in detail in later sections. (Varshney & Saigal) Advantages There are numerous benefits of internationalizing the portfolio. By internationalizing, the individual or firm will be able to minimize the risk; invest in growing markets thus benefiting from their growth; hedge the prices of goods in the consumption basket; enjoy higher return than expected; diversify investments; and enjoy lower variation of return. (Greco) High economic growth leads to the higher GDP and high growth level. This attract other investors from other countries in invest in the growing economies. Growing economies are determined by the World Bank as the ones which have average income levels but high economic growth levels. These emerging economies can be of Middle East, Asia, Africa or Latin America. ...
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