Individual 3 international trade operation Essay

Individual 3 international trade operation - Essay Example Samson. However, when investing in the international market, Mr. Samson should be prepared to deals with challenge of stiff competition from the international firms (Choudhury, 2012). Therefore, this study will provide an insight of various elements that Mr. Swanson should take into consideration when investing in the international markets. What is portfolio diversification? Explain why are foreign investments effective at diversifying a portfolio? Portfolio diversification entails hedging risk by investing in various assets/portfolios. This means that a diversified portfolio will expose an investor to less risk as compared to a single investment. For example, if one investment is performing poorly in the market the other one might be performing well hence, distributing risk unlike in a situation where one has invested in single portfolio. Therefore, investors are strongly urged to invest wisely by diversifying their portfolio (Hagin, 2004). In above connection, foreign investments h ave been reported to be effective at diversifying a portfolio due to the following reasons. There is well advanced level of information technology that enables investors to track their investments and market trends as well as promotion of idea exchange. International market tends eradicate foreign exchange controls and hence making it quit effective to diversify portfolio, higher growth and proper flow of international capital makes it effective to diversify portfolio in the international market. Development of both multinational and global companies had made it easier and effective to diversify a portfolio in the international market. Trade deregulation in the international market has made it effective for portfolio diversification within the international market (Yavas, 2007). What are the main reasons to invest in international markets? Explain. The main reasons to invest in international market include: risk reduction. For example, if one has investments in Japan and the other o ne in the U.S, economic down town in U.S may only affect an investment that is in the U.S but not the one in Japan. This means that investing in the international market prevent one from incurring greater risk. Secondly, international markets provide an investor with greater investment opportunities. For example, international market provides investors with an opportunity to trade stocks with higher value as compared to those offered in the domestic market and hence, providing an investor with higher returns (Gibley, 2012). Thirdly, an international market has higher growth potential as compared to domestic market. This provides an investor with an opportunity to take advantage of potential growth in the foreign markets. Fourthly, International Markets provides an investor with an added advantage because international companies can help to boost returns especially when there is fluctuation of domestic currencies. For example, an international investor may obtain more returns when th ere is a decline in the value of dollar while on the contrary a domestic investor may obtain losses. Therefore, the above benefits can lead an investor to venture in international market (Gibley, 2012). What are the major risks associated with investing internationally? There are three most common risks that may be experienced when investing in the