Topic_18_E2 - Topic 18 Exercise 2 International Investments...

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Topic 18 Exercise 2 International Investments The Gains from International Risk-Sharing How important is it for investors to diversify by investing in international markets? International diversification is one way to lower market risk since foreign economies generally do not move one-for-one with the U.S. economy. However, in recent years researchers have found that returns on stocks from developed countries have become more highly correlated, leading many to question the benefits of international diversification. An article written by Keith Sill, who is a senior economist in the Research Department of the Philadelphia Federal Reserve Bank, examines the issues related to International Diversification. After reading the article in the Business Review of the Philadelphia Federal Reserve Bank for Q3 of 2001, answer the questions: 1. How does the cost of investing in foreign assets affect the extent to which international diversification is employed?
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