International Accounting – Chapter 1
Explain why an individual investor might want to invest in an international growth fund. An individual investor might want to invest in an international growth fund if they are seeking to become more diversified. During times when the US stock market is poorly performing, it is likely that its foreign counterparts will be doing well because the two markets often have an inverse relationship. An investor might also want to invest in an international growth fund if these funds are projected to have high growth potential, which would translate into a higher return than if the investor were to invest in a US growth fund. An individual investor might opt to invest in an international growth fund during times when U.S stock prices are higher as they may pose a barrier to entry and it would be easier for them to get into the market in a country where it is less expensive. Country/regional and currency risk might also influence an investors decision to invest in an international growth fund during times when there are domestic troubles causing the market to appear unstable. In this instance, the investor might choose to invest in a region where conditions are more predictable, stable or the currency exchange rate is more favorable.
Describe the risks associated with making an investment in an international growth fund. Identify the risks that would be common to domestic and international funds, and those risks that would be unique to an international fund. Investment style risk encompasses possibility that international growth funds may not perform as well as other stocks in the entire domestic investment market. Stock market risk is the inherent possibility that stock prices will drop. Foreign stock prices fluctuate more than U.S. prices and often have an inverse relationship. Country/regional and currency risks are factors involved in investing in international growth funds. Country/regional risks involve the...
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