im-20-4e - CHAPTER TWENTY INTERNATIONAL DIVERSIFICATION...

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CHAPTER TWENTY INTERNATIONAL DIVERSIFICATION CHAPTER OVERVIEW This chapter notes that the United States offers a relatively small portion of the entire assets available for investment purposes. In addition, the benefits of increased diversification as a result of international investing are presented. International indexes are available for passive investing purposes. Although exchange rate risk is present in international investing, exchange rate futures may allow a portion of that risk to be hedged. Finally, evidence is offered that the CAPM and APT models may not apply to international investing and that additional risk premiums should be applied to such investments LEARNING OBJECTIVES After studying this chapter, the student should understand the advantages of international diversification, and be able to devise hedge strategies to offset currency risk involved in international investing. The student should also be able to decompose investment returns into contributing factors such as country, currency, and stock selections. Finally, the student should be able to assess the contribution of investment alternatives, such as precious metals, real estate and nontraditional investments, such as art or rare coins to portfolio diversification. PRESENTATION OF CHAPTER MATERIAL 1. Overview and Issues Initial back ground for the chapter is presented in T 20-2. The growth of international investment has
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This note was uploaded on 10/28/2009 for the course MBA MBA608 taught by Professor Martin during the Spring '09 term at Beirut Arab University.

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im-20-4e - CHAPTER TWENTY INTERNATIONAL DIVERSIFICATION...

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