International Accounting Case 1-2

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International Accounting Case 1-2

1. An individual investor might want to invest in an international growth fund so that they can diversify their assets into mutual funds that invest in the stock of foreign companies instead of companies that are only in one country.

2. Risks common to both domestic and international funds:

a. Investment style risk - the chance that returns from non-U.S. growth stocks and small- and mid-cap stocks, will trail returns from the overall domestic stock market

b. Stock market risk – the chance that stock prices overall will decline

c. Manager risk – the chance that the poor selection of securities will cause the Fund to underperform

Risks unique to international funds:

a. Country/regional risk – the chance that domestic events (political upheaval, financial troubles, or natural disasters) will weaken the country/region’s market

b. Currency risk – the chance that the value of a foreign investment will decrease because of changes in currency exchange rates

3. Since foreign companies are not subject to the same accounting, auditing, and financial reporting standards and practices as U.S. companies, it poses a risk that the information available to investors is not as reliable when making decisions. Their stocks may also not be as liquid as those similar US firms.

4. The proportions of fund assets could be distributed in this manner for a number of reasons. The growth potential could be different across the region; it could also be the number of firms that are being invested in across the region. Because of different reporting standards, the information available for investors may be different across the regions which will influence investment decisions.

5. The fund is most heavily invested in the UK, Japan, and France. These countries are heavily invested probably because of some of the reasons I listed in answer #4. The growth potential is probably greater in...
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