1. 1 VIII. International Diversification

2. 2 International Diversification 1)The Impact of Exchange Risks 2)Historic Measures of Risk and Return 3)Exchange Risk Revisited 4)Returned Revisited 5)Some Additional Evidence on International Diversification

3. 3 1. The Impact of Exchange Risks

4. 4 Return to German Investor Return to American Investor Value of Cost of 1 German Mark in Value in $ Shares Dollars 40 DM.50 20.00 44 DM.51 22.44 TIME 0 1

5. 5 Where R X = Return From An American Holding Marks

6. 6

7. 7 2. Historical Measures of Risk and Return Means Standard Deviations Correlation Coefficients

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15. 15 3. Exchange Risk Revisited

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19. 19 4. Return Revisited

20. 20 CONDITION FOR A NON U.S. SECURITY TO BE INCLUDED IN A U.S PORTFOLIO = THE EXPECTED RETURN IN A NON U.S. SECURITY = EXPECTED RETURN ON AN AMERICAN SECURITY = STANDARD DEVIATION OF A NON U.S, SECURITY = STANDARD DEVIATION OF A US. SECURITY = THE CORRELATION BETWEEN U.S. SECURITIES AND NON U.S. SECURITIES = THE RISK FREE OF INTEREST

21. 21 or

22. 22 Evaluate X=0

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24. 24 5. Some Additional Evidence on Internationally Diversified Portfolios

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