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Definition of International diversification

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International diversification

The attempt to reduce risk by investing in the more than one nation. By
diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce
the variability of their returns.



Related Terms:

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.


Diversification

Dividing investment funds among a variety of securities with different risk, reward, and
correlation statistics so as to minimize unsystematic risk.


Diversification

The process of spreading a portfolio over many investments to
avoid excessive exposure to any one source of risk


diversification

Strategy designed to reduce risk by spreading the portfolio across many investments.


Diversification

Investing so that all your eggs are not in the same basket. By spreading your investments over different kinds of investments, you cushion your portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification.



diversification

An investment technique intended to minimize risk by utilizing a wide variety of investments within a portfolio. In a diversified portfolio, a decline in the value of one investment, for example, should be offset by the strength of other investments.


Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.


International Diversification Image 2

Efficient diversification

The organizing principle of modern portfolio theory, which maintains that any riskaverse
investor will search for the highest expected return for any level of portfolio risk.


International Bank for Reconstruction and Development - IBRD or World Bank

international Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.


International Banking Facility (IBF)

international Banking Facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.


International bonds

A collective term that refers to global bonds, Eurobonds, and foreign bonds.


International Depository Receipt (IDR)

A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
Receipt (ADR).


International finance subsidiary

A subsidiary incorporated in the U.S., usually in Delaware, whose sole
purpose was to issue debentures overseas and invest the proceeds in foreign operations, with the interest paid
to foreign bondholders not subject to U.S. withholding tax. The elimination of the corporate withholding tax
has ended the need for this type of subsidiary.


International Fisher effect

States that the interest rate differential between two countries should be an
unbiased predictor of the future change in the spot rate.


international Fisher effect

Theory that real interest rates in all countries should be equal, with differences in nominal rates reflecting differences in expected inflation.


International fund

A mutual fund that can invest only outside the United States.


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international fund

A mutual fund that can invest in securities issued anywhere outside of Canada.


International market

Related: See external market.



International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.


International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.


International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).


International Reserves

See foreign exchange reserves.


Liquidity diversification

Investing in a variety of maturities to reduce the price risk to which holding long
bonds exposes the investor.


London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.


London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.


Magic of diversification

The effective reduction of risk (variance) of a portfolio, achieved without reduction
to expected returns through the combination of assets with low or negative correlations (covariances).
Related: Markowitz diversification


Markowitz diversification

A strategy that seeks to combine assets a portfolio with returns that are less than
perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return.
Related: naive diversification


International Diversification Image 4

Naive diversification

A strategy whereby an investor simply invests in a number of different assets and
hopes that the variance of the expected return on the portfolio is lowered.
Related: Markowitz diversification.



Portfolio Diversification

See diversification


Principal of diversification

Highly diversified portfolios will have negligible unsystematic risk. In other
words, unsystematic risks disappear in portfolios, and only systematic risks survive.


SIMEX (Singapore International Monetary Exchange)

A leading futures and options exchange in Singapore.



 

 

 

 

 

 

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