Ch15_2 - 1 Multinational Financial Management Alan Shapiro 9 th Edition J.Wiley& Sons Power Points by Joseph F Greco Ph.D California State

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Unformatted text preview: 1 Multinational Financial Management Alan Shapiro 9 th Edition J.Wiley & Sons Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton 2 CHAPTER 15 International Portfolio Investment 3 Why Invest Internationally? What are the risks of international investment? Changes in currency exchange rate: this can increase or reduce your investment return Dramatic changes in market value: individual investors frequently lose money when they try to “time” the market in the US, and are even less likely to succeed in a foreign market. Political, economic and social events: they contribute to the risk of international investing. 4 Lack of liquidity: lower trading volume and smaller number of firms available for investment Less information: the information published by the companies may not be English Reliance on foreign legal remedies: even if you sue successfully in the US court, you may not be able to collect on a US judgement agains a foreign firm. 5 Different market operations: some market may not report stock trades as quickly as US markets. 6 THE BENEFITS OF INTERNATIONAL EQUITY INVESTING I. THE BENEFITS OF INTERNATIONAL EQUITY INVESTING A. Advantages 1. Offers more opportunities than a purely domestic portfolio 2. Attractive investments overseas 3. Impact on efficient portfolio with diversification benefits 7 Basic Portfolio Theory II. Basic Portfolio Theory A. What is the efficient frontier? It represents the most efficient combinations of all possible risky assets 8 The Efficient Frontier E(r) σ A B Portfolio A is efficient Portfolio B is inefficient 9 Basic Portfolio Theory The broader the diversification, the more stable the returns and the more diffuse the risk. 10 Basic Portfolio Theory B.International Diversification 1. Risk-return tradeoff: may be greater 11...
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This note was uploaded on 01/24/2011 for the course FINS 5516 taught by Professor A during the Three '10 term at University of New South Wales.

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Ch15_2 - 1 Multinational Financial Management Alan Shapiro 9 th Edition J.Wiley& Sons Power Points by Joseph F Greco Ph.D California State

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