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International Diversification in Finance

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International Diversification in Finance

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Questions and Answers

What type of market is characterized by having signs of development but cannot be considered an emerging market?

Established market

Developed market

Emerging market

Frontier market (correct)

What is the risk of making a financial loss as a result of exchange rate movements?

Political risk

Currency risk (correct)

Market risk

Foreign investment risk

Which of the following is a risk of investing in foreign countries?

Market risk

Company risk

Domestic risk

Foreign investment risk (correct)

Which type of market is generally defined as a country with well-developed capital markets and economy?

Developed market Signup and view all the answers

What type of risk occurs when changes to the political climate in a country directly or indirectly impact inflation and interest rates?

Political risk Signup and view all the answers

Which type of market is generally considered to be riskier than developed markets?

Emerging markets Signup and view all the answers

What is the primary goal of international diversification?

To reduce volatility by spreading risk across multiple geographical regions Signup and view all the answers

What is a benefit of adding foreign exposure to a portfolio?

To reduce exposure to country-specific risks Signup and view all the answers

Why is diversification important for a portfolio?

To hedge and reduce risks associated with investing Signup and view all the answers

What is a result of not diversifying a portfolio?

It will carry unnecessary risk Signup and view all the answers

What is a reason why different types of investments perform differently at the same time?

They are affected differently by world events and changes in economic factors Signup and view all the answers

What does diversification enable you to do?

To build a portfolio with generally less risk than the combined risks of the individual securities Signup and view all the answers