Investors Are Able to Reduce Risks by Diversifying an Investment

question 88

Multiple Choice

Investors are able to reduce risks by diversifying an investment portfolio internationally, and the risk reduction effects would be greater if not for

• A) volatile exchange rates associated with the current floating exchange risk regime.
• B) the different kinds of tax regimes in different countries.
• C) the inaccessibility of foreign stock exchanges to most investors.
• D) the poor quality of many stocks in international start-up firms.

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Definitions:

Explicitly Accounts

Refers to the method of recording or acknowledging financial transactions, assets, liabilities, or other elements in financial statements in a clear and detailed manner.

SML Approach

Stands for the Security Market Line approach, which illustrates the expected return of investments as a function of their risk, according to the Capital Asset Pricing Model (CAPM).

Subjective Approach

A perspective or method based on personal opinions, interpretations, points of view, emotions, and judgment.

Weighted Average Cost

A method to calculate the average cost of goods produced or acquired, weighted by the quantities.