Investing Globally Bill Reese International Finance 1

Learning Objectives In this unit we will learn:  How international portfolio diversification can reduce risk  Ways to invest internationally  Factors to consider when investing internationally 2

Why Invest Internationally? Diversification  Markets in different countries are not perfectly correlated  Benefit to diversification Foreign markets have more growth potential Hedge against declining $ 3

International Diversification Reduces Risk 4 E(R)  100% Foreign 80% U.S. 100% U.S. 90% U.S. 50% Foreign

How to Invest Internationally Direct purchase of foreign stocks ADRs Invest in MNC stocks ETFs International mutual funds 5

Factors Effecting International Investments Taxes  Local tax rate on interest and dividends  U.S. treatment of foreign investment income Interest rates Exchange rates 6