Investment in International Portfolios

Investment in International Portfolios The global economical conditions have drawn attention of investors in international investments. Investors are often found to be anxious about investment (domestically or internationally). This is because of the economical and political instability in many countries. This issue has become one of the major highlight of the investing sector (Chong, 2004).Advertising We will write a custom essay sample on Investment in International Portfolios specifically for you for only $16.05 $11/page Learn More The question that has gained attention is whether the investment shall be done in a diversified international portfolio or a diversified domestic portfolio. (Maginn Tuttle, 2010) This discussion will cover advantages and disadvantages of investing in both international and domestic portfolios. According to many authors the international portfolio gives better opportunity for investment. Therefore, it is useful to analyze preferences for an international portfolio o ver a domestic portfolio. Historical reviews reveal that scholars have preferred investment in international portfolios as compared to domestic portfolios (Hagin, 2004). According to researches, the investment in globally diversified portfolios minimizes risks. On the other hand, investment risks in the domestic portfolios are relatively high (Chong, 2004). This is because of the reason that an international portfolio earns a higher rate of return as compared to a domestic portfolio with the same level of risks (Maginn Tuttle, 2010). Due to poor market performance and global economical conditions investors are found to be more inclined towards investing internationally (Maginn Tuttle, 2010). Factors that have made investors more attracted towards making international investments are economical stability, tax reduction, and gains from foreign exchange rates, etc. (Hagin, 2004). Whereas, some scholars argue that diversified domestic investment portfolios are more beneficial. Accordi ng to them, international diversified portfolios pull out cash flow of the country (Chong, 2004). Therefore, investment in a domestic portfolio should be made (Maginn Tuttle, 2010). However, risks involving the domestic investment are higher if local economical and political conditions are instable. For the purpose, investors seek international investments as they are considered more secured. Analyzing the information, it can be concluded that diversified international portfolios are more secure investments as compared to investments in the domestic portfolio. Investors are more inclined towards investing in the sector having higher rate of return and involves minimum risks. International portfolio provides a platform for the investors to invest in any leading international markets. It further allows Investors to invest in markets having higher rates of return (Hagin, 2004). Investors in countries with instable economic and political situation can also avail the opportunity to inve st in international portfolios. Countries like Greece, Spain, and Cyprus etc which are undergoing economic crises could deter investors from investing in the domestic market as the performance of the domestic market is declining due to the poor conditions (Maginn Tuttle, 2010).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Therefore, investors can invest in the international market after evaluating the efficiency of the market (Chong, 2004). The other main significance of investing in internal portfolios is the benefit arising from changes in exchange rates. Investors from countries with lower currency rates can invest in markets having higher currency rates (Maginn Tuttle, 2010). Positive fluctuations in the exchange rates allow investors to earn more. However, this is not always the case and changes in the exchange rates may result in a loss as well. Therefore, the investor should be careful while investing. The main three aspects that shall be carefully determined by investors are market risk, interest-rate risk and credit risk. Performance of the international portfolio reflects efficient performance and risk management in those markets. Reference List Chong, Y. Y. (2004). Investment Risk Management. Wiltshire: John Wiley Sons. Hagin, R. L. (2004). Investment Management: Portfolio Diversification, Risk, and TimingFact and Fiction. New Jersey: John Wiley Sons. Maginn, J. L., Tuttle, D. L. (2010). Managing Investment Portfolios: A Dynamic Process. New Jersey: John Wiley Sons.