ch25_27 - 25-1Lecture VII)¡International...

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Unformatted text preview: 25-1Lecture VII (Chapters 25, 27)¡International DiversificationInternational Diversification¡Active Portfolio Management Active Portfolio Management 25-2International International DiversificationDiversificationChapter 2525-3FIN 275Lecture VII – p. 3¡Global market ¡US market is 39.2% of all markets in 2005¡US market share is down from 47% in 2000¡Improved access & technology ¡New instruments¡Emphasis for our investigation¡Risk assessment¡DiversificationBackground25-4FIN 275Lecture VII – p. 4Evidence shows international diversification is beneficial.¡It’s possible to expand the efficient frontier above domestic only frontier.¡It’s possible to reduce the systematic risk level below the domestic only level.Diversification Benefits25-5FIN 275Lecture VII – p. 5Efficient Frontier withInternational DiversificationReturnRisk********DomInt’l*25-6FIN 275Lecture VII – p. 6Systematic Risk Level with International DiversificationRiskSecuritiesInt’lDom25-7FIN 275Lecture VII – p. 725-8FIN 275Lecture VII – p. 825-9FIN 275Lecture VII – p. 925-10FIN 275Lecture VII – p. 1025-11FIN 275Lecture VII – p. 1125-12FIN 275Lecture VII – p. 12¡Direct stock purchases (institutions mainly)¡American depository receipts [ADRs]¡Banks purchase foreign shares and hold them¡Then issue claims to those shares in the US¡ADRs are traded on exchanges just like US shares¡Mutual Funds¡Open-end funds¡Closed-end funds¡WEBS (ETFs: World Equity Benchmark Shares)¡Indexes: offer exposure to country-specific equity markets¡Passive investment ¡Traded on Amex like regular shares¡US dollar denominatedInternational Investment Choices25-13FIN 275Lecture VII – p. 13Political Risks¡Expropriation of assets¡Restrictions on foreign exchange¡Political instabilityDifferent accounting standardsRisks in International Investing25-14FIN 275Lecture VII – p. 14¡Political Risk Services Group RatingsRank countries with respect to political risk, financial risk and economic riskAssign composite rating from very high risk to very low risk based on the above elements of risk...
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This note was uploaded on 03/03/2012 for the course FINA 6275 taught by Professor Gerganajostova during the Spring '12 term at GWU.

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ch25_27 - 25-1Lecture VII)¡International...

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