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International Diversification
Chapter 25
Background
Global market
US Market is 40% - 49% of all markets Improved access & technology
New instruments
Emphasis for our investigation Risk assessment
Diversification
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Issues
What are the risks involved in investment in foreign securities?
How do you measure benchmark returns on foreign investments?
Are there benefits to diversification in foreign securities?
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Foreign Exchange Risk
Foreign Exchange Risk
Variation in return related to changes in the relative value of the domestic and foreign currency.
Total return = investment return & return on foreign exchange
It’s not possible to completely hedge a foreign investment.
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Returns with Foreign Exchange
Return in US is a function of two factors:
1. Return in the foreign market
2. Return on the foreign exchange
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