EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Concept explainers
Question
Chapter 25, Problem 1PS
Summary Introduction
To determine:
Whether U.S. companies with global operations can give international diversification.
Introduction:
International diversification means investing in various countries rather than one country to diversify the risk.
Expert Solution & Answer
Explanation of Solution
U.S. based companies which have a multinational business and doing work globally is not considered as an international diversification. A US multinational companies are owned by US investors so it is considered as a US Company only. For international diversifications, US investor should invest in a foreign company. Then that is called as an international diversification.
In the light of above, though the US company's capitalization and other foreign companies' diversification is 40:60. The US investor for international diversification should invest 40% of total investment to the foreign companies and other 60% should invest in US companies.
Conclusion
Therefore, the claim that US companies with global operations can give international diversification is not correct.
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