Risk Assessment with International Diversification I believe all investors hope to achieve a higher than expected return on their investment with minimum downside risk. Investing in global markets is starting to make sense for a growing number of investors, as U.S. stocks represent less than 40% of global stocks and even a small fraction of total global wealth (Bodie, Kane and Marcus, 2014). more than 50 countries had a combined market capitalization of $1 billion and above, making investing in foreign capital markets much easier than ever before (Bodie et al, 2014). Financial Exchange Risk I believe that investing in a foreign country can be risky for a US investor because the other country obviously uses a different currency than the US dollar, therefore any movement in the exchange rate between the US dollar and the foreign currency will be a source of concern for the American investor. Consider the example of an American investor who wants to invest in British government bonds, which pay 10% annual interest in sterling (Bodie et al., 2014). Although UK bonds are risk free for a UK investor, this is not the case. for an American investor due to currency risk (Bodie et al., 2014). Suppose at the time of investment the exchange rate is $1.8 per pound, an initial investment of $20,000 can be exchanged for £11,111.11 and would increase to $1.8 per pound. £12,222.22 in one year (Bodie et al., 2014). Suppose that at the end of the year the pound sterling has depreciated against the dollar and the exchange rate is now $1.60 per pound (Bodie et al., 2014). 12,222.22 can be exchanged into US dollars for $19,555.55 (= 1.6 * 12,222.22), representing a loss of $444.45 (Bodie et al., 2014). Therefore, d...... middle of paper ...... it Optimization and evaluation of the investment portfolio. Engineering Economics, 24(4), 282-290. doi:10.5755/j01.ee.24.4.5416Bodie, Z., Kane, A., & Marcus, A. (2014). Investments. New York: McGraw-Hill Education Choudhury, A. and Naidu, GN (2011). International portfolio diversification based on partial correlation. Journal of the Academy of Accounting and Financial Studies, 89-102Huang, M. and Lin, J. (2011). Do ETFs offer effective international diversification? Research in International Business and Finance, 25(3), 335. doi:10.1016/j.ribaf.2011.03.003Jacobs, H., Müller, S., & Weber, M. (2013). How should individual investors diversify? An empirical assessment of alternative asset allocation policies. Journal of Financial Markets, doi:10.1016/j.finmar.2013.07.004 Wright, C. (Producer). (2012).Portfolio Optimization in Excel [Online].Available at https://www.youtube.com/