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For an Investor Contemplating Adding Foreign Stocks to Her Portfolio

Question 3

Multiple Choice

For an investor contemplating adding foreign stocks to her portfolio there are several issues to consider. Which of the following is not one of them?


A) International diversification provides superior risk reduction than one could obtain with only domestic shares because national economies are not highly correlated.
B) If one adds a foreign stock to a portfolio, two bets are being made: (1) the share price will increase in its local market, and (2) the currency in which the share offers returns will rise or at least hold steady against the home currency.
C) If an investor is concerned about foreign exchange risk associated with investments in foreign shares, it is always possible to hedge those risks in the currency futures market.
D) All of the statements above are legitimate issues to consider when investing in foreign shares.
E) Only statement a is a legitimate issue.

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