Investment have become a mandatory thing for the ones who doesn’t want to just save money but also to generate income out of it. It is general tendency to invest in domestic market but there are also wide areas to invest in international markets. For this one needs to have international portfolio investment.
What is an International Portfolio?
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An International Investment Portfolio is the grouping of various investment products and assets which consists of the foreign investment options. Also international portfolio is designed to give exposure to investors regarding the potential development in foreign market for investments and also gives knowledge about emerging and developed market. It further allows investors to diversify their assets and investment by moving away from only domestic investment. It also brings increased stability through investments in industrialized and more stable foreign markets. Portfolio investments basically includes transactions in securities which are highly liquid. Portfolio investment is different from direct investment and does not allow an investor to exercise any kind of managerial control over companies.
Advantages of International Portfolio Investment
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This investments helps in reducing risk. If any single stock underperform, the other stocks are there to minimize the risk of loss. Thus an investor’s domestic investment may decline meanwhile international portfolio have advanced to a considerable level thus balancing the risk for the investor. Thus by investing in both the markets he can take advantage of all the markets of different countries.
An investor having an international portfolio may take advantage of market cycles of various nations. Thus if the investor thinks that stocks in one exchange are overvalued, he can invest in stocks of other countries which does have demand for commodities.
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Also international portfolio diversifies currency exposure. The investor, along with buying the stocks of other countries, also indirectly buys the currency of that country. The international portfolio will help in neutralizing the currency fluctuations of an investor with different counties.
Disadvantages of International Portfolio Investment
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The investment in international portfolio carries economic and political risks. International portfolio invests in stocks of different countries including developed as well as developing countries. Different countries have different political and economic stability. This may increase the risk factor and make the socks volatile in nature.
Generally while trading the investor spends more on brokerage for trading in securities and the cost increases even more when it comes to international trading. Taxes, Stamp duties, Exchange rates etc. play an important role in deciding the investment and income of the investor in international portfolio.
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Even though there are advantages of International investment such as diversification in assets, taking advantages of market segmentation, participate in growth of developing countries, the risks involved must not be overlooked. These international portfolio investments not only carries currency risk but there are also various industrial constraints and political risks.