Chapter 25, Problem 1PS

Summary Introduction

To determine:

Whether U.S. companies with global operations can give international diversification.

Introduction:

International diversification means investing in various countries rather than one country to diversify the risk.

Explanation of Solution

U.S. based companies which have a multinational business and doing work globally is not considered as an international diversification. A US multinational companies are owned by US investors so it is considered as a US Company only. For international diversifications, US investor should invest in a foreign company. Then that is called as an international diversification.

In the light of above, though the US company's capitalization and other foreign companies' diversification is 40:60. The US investor for international diversification should invest 40% of total investment to the foreign companies and other 60% should invest in US companies.

Conclusion

Therefore, the claim that US companies with global operations can give international diversification is not correct.