International Investment and Portfolio Management

A complete list of key vocabulary terms and definitions from the lecture on International Investment and Portfolio Management.

International Investment

Investing funds in financial assets or businesses located outside the investor's home country.

Portfolio Management

The process of selecting, monitoring, and managing a group of investments to achieve specific financial objectives while controlling risk.

Diversification

Spreading investments across different assets rather than putting all funds into one investment, following the principle 'do not put all your eggs in one basket.'

Global Diversification

Spreading investments across different countries and regions to reduce portfolio risk by investing in markets that do not always move in the same direction.

Currency Risk

The risk that changes in exchange rates can increase or decrease the value of foreign investments.

Political Risk

The risk that political instability, government changes, taxation policies, or restrictions on foreign investment can affect investments.

Economic Risk

The risk that changes in economic conditions, such as recession, inflation, unemployment, and interest-rate changes, can negatively affect financial markets.

Country Risk

The risk arising from different countries having different levels of financial, legal, political, and economic stability.

Market Risk

The risk that foreign stock and bond markets, or the overall market, will experience substantial price fluctuations or decline.

International Bonds

Debt securities issued by governments, corporations, or other organizations outside the investor's home country.

Foreign Bonds

Bonds issued by a foreign borrower in another country's domestic market and denominated in that country's currency.

Eurobonds

Bonds issued in a currency different from the currency of the country where they are issued.

Global Bonds

Bonds issued internationally that may be offered in several major financial markets simultaneously.

International Equities

Ownership interests in companies located outside the investor's home country.

Capital Appreciation

A source of investment return achieved when an asset's stock price increases above its original purchase price.

Dividends

Distributions of a portion of a company's profits made directly to its shareholders.

Risk

The possibility that the actual return from an investment will differ from the expected return.

Interest Rate Risk

The risk that changes in interest rates will negatively affect bond prices.

Credit Risk

The possibility that a bond issuer cannot meet its financial obligations.

Liquidity Risk

The possibility that an investment cannot be sold quickly without significantly reducing its price.

Basic Investment Return Formula

$$\text{Return} = \frac{\text{Ending Value} - \text{Beginning Value} + \text{Income}}{\text{Beginning Value}} \times 100$$

Standard Deviation

A common measure of investment risk where a higher value indicates that an investment's returns fluctuate more widely around its average return.

Correlation

A financial metric that measures how two investments move relative to each other.

Positive Correlation

A scenario in which two investments tend to move in the same direction.

Negative Correlation

A scenario in which two investments tend to move in opposite directions.