Discuss how the following hinder or become barriers to international diversification of portfolios of investment. Segmented markets Lack of liquidity Exchange rate controls Less developed capital markets
Discuss how the following hinder or become barriers to international diversification of portfolios of investment.
- Segmented markets
- Lack of liquidity
- Exchange rate controls
- Less developed capital markets
International diversification of investment portfolios can offer benefits in terms of risk reduction and potential returns. However, several factors can hinder or become barriers to effective international diversification:
- Segmented markets
- Lack of liquidity
- Exchange rate controls
- Less developed capital markets
To overcome these barriers to international diversification, investors often engage in thorough research, consider the political and economic stability of the countries they are investing in, and may use financial instruments such as derivatives to manage currency risk.
Additionally, diversifying across a broad range of countries and assets can help mitigate some of these challenges.
It's important to note that despite these barriers, international diversification can still provide valuable benefits, including reduced portfolio risk through exposure to different economic cycles and access to opportunities in markets with strong growth potential.
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