When a firm holds assets in many countries,
A)the firm's cash flows are internationally hedged.
B)thus, shareholders of the firm can indirectly benefit from international diversification even if they are not directly holding foreign shares.
C)thus, shareholders of the firm can directly benefit from international diversification even if they are not directly holding foreign shares.
D)none of the above

Question

Quizplus · Accepted Answer

When a firm holds assets in many countries, it is exposed to different economic and political conditions, which can help to diversify its risk. As a result, shareholders of the firm can indirectly benefit from this international diversification even if they are not directly holding foreign shares. While holding assets in many countries may not completely hedge a firm's cash flows since exchange rates and other factors can still impact their cash flows, it can still provide some degree of international diversification benefits to shareholders. Therefore, option B is the best choice.

When a Firm Holds Assets in Many Countries