They are followed by the investment strategies pursued by three international funds. In this part, the steps that they make to highlight lucrative investment have been mentioned. Improving Returns International stocks have more chances to bring higher returns in comparison with the local stocks. Investors are considerably aware of the fact that international stocks have a wide variety of characteristics. The wide variety of characteristics is capable to increase portfolio performance by diversifying across different international markets or different industries in different countries. In this regard, investing in the foreign or international markets offers difference when compared with the investment made in domestic or national market, and this difference can be comprehended in three ways. First, barriers levied by currency controls, taxation, or investor traditions may further so divide national markets that assets are priced in a national instead of an international landscape. Second, the co-variances among assets within a national market are much bigger than the co-variances among different markets. Third, exchange rates between different currencies depart from each other, exposing currency to international portfolios (Gupta & Donleavy, 2009, p. 163). ...
If an investor invests 100 percent of his funds in a firm producing sunscreen lotion, he will be exposed to the risk of weather events; on rainy days there will be no sales of sunscreen lotion, but on sunny days sales will be good. If the same level of investment were divided with half in the sunscreen lotion firm and half in an umbrella manufacturing company, the investment would become immune to negative weather effects and the portfolio would generate interrupted flow of returns regardless of weather patterns. The Optimal International Portfolio Diversification brings variety in investment. The optimal international portfolio combines the same risk-free assets as before (Eiteman et al., 2010, p.438). Eiteman et al. (2010) argue that the benefits of international diversification can be comprehended on the basis of the fact that the optimal international portfolio incorporates both higher expected portfolio return and lower expected portfolio risk when compared with the purely national or domestic optimal portfolio. As a result, the optimal international portfolio has been established as superior and financially lucrative as compared to the optimal domestic portfolio. Global Funds Using International Portfolio Diversification Templeton Global Bond Fund The firm uses both quantitative and qualitative analysis before investing diversified funds globally (Templeton Global Bond Fund, 2012). The firm employs both quantitative and qualitative analysis along with on-the-ground research. In order to minimize the portfolio risk and increase the chances of portfolio returns, the firm utilizes the resources of local analysts across the world to identify and highlight financially
International Portfolio Diversification Name University Introduction Diversification can be defined as a risk management technique that combines a wide variety of investments within a particular portfolio. The benefits of this diversification are as follows: it improves returns on investments, reduces risk on investments, and provides the optimal international portfolio…
Beta is used to measure risk. A stocks beta indicates the sensitivity of the stock’s returns to the market returns (Madura 2006, p. 304). Madura (2006, p. 304) states that investors who have a diversified portfolio use beta to determine how well their portfolio reflects movements in the market.
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.
However, even much earlier, the article of Fisher (1973) confirmed that the theory has been very alive and was even the core of Fisher’s (1973) contributions to the theory. As recent or late as 2005, the article of Leibowitz and Bova contributed to modern portfolio theory in the area of “allocation betas.” This confirms that modern portfolio theory continues to be the benchmark theory of many analysts.
Comprehending international stock market relations has become a significant tool for business people who desire to diversify their portfolios on a universal foundation. As a result, it is essential to settle on the nations whose stock prices are not moving in the same direction, are concurring, and those that are not related at all.
Forward market is an OTC market where traders can buy or sell currency at a pre-specified rate for delivery on a pre-specified date. The exporter can sell the forward contract to hedge his/her receivables and the importer can buy forward contract to hedge his/her payables.
The author suggests that if an investor purchases some shares in his home country i.e. and also includes in his portfolio a number of shares from international countries like the United States and European countries, the risk associated with both the investments would be different based upon the various political, economic and investment factors.
Likewise, sophisticated currency hedging methods have been developed as another portfolio protection device. One set of three articles by professionals with educated but differing views on the rationale of international diversification will be compared and contrasted.
The author states that many market participants prefer keeping their money inside their country because they know the financial situation of their country. Globalization changed the financial market in a number of ways. The global financial market has offered investors more sources to borrow from, and thus boosting their potential for growth.