In some respects, internationally diversified portfolios are different from a domestic portfolio because:
A) investors may also acquire foreign exchange risk.
B) international portfolio diversification increases expected return but does not decrease risk.
C) investors must leave the country to acquire foreign securities.
D) all of the above

Question

Quizplus · Accepted Answer

Internationally diversified portfolios differ from domestic portfolios in the sense that investors may also acquire foreign exchange risk. This risk arises from fluctuations in currency exchange rates, which can impact the value of investments denominated in foreign currencies. Therefore, investors who invest in international markets must also factor in this additional risk. Option B is incorrect because international portfolio diversification has been shown to reduce risk without sacrificing returns. Option C is also incorrect because investors can acquire foreign securities through various investment vehicles and do not necessarily need to leave their country to do so.

In Some Respects, Internationally Diversified Portfolios Are Different from a Domestic