Definition
International investments refer to investment strategies that involve choosing global investment instruments as part of an investment portfolio. These might include bonds, shares, or property in foreign markets. This strategy allows investors to diversify their investment portfolio by exposing it to opportunities in foreign economies.
Key Takeaways
- International investments provide an opportunity to diversify an investment portfolio, spreading risk across different markets and reducing potential losses.
- They provide potential higher returns as emerging markets can offer attractive growth prospects compared to mature markets like the U.S or Europe.
- International investments can also involve risks like currency risk, political instability, complex tax implications and differing legal regulations.
Importance
International investments are important as they offer diversification by spreading risk across various markets in different countries, thus potentially reducing the overall investment risk.
These types of investments provide access to growth opportunities in emerging markets and sectors not available domestically.
Not only does it help in hedging against domestic economic instability, but it also allows investors to capitalize on the potential currency exchange gains.
Moreover, it broadens the investment landscape as each country’s political, economic, and social situation presents unique investment opportunities; hence it plays a key role in portfolio management.
Therefore, understanding international investments is crucial for investors seeking global exposure and diversification.
Explanation
International investments refer to investment strategies that involve choosing global investment instruments as part of an investment portfolio. People often make international investments to diversify their portfolios through geographic diversification to reduce risk or take advantage of emerging markets. It allows investors an opportunity to invest in different economies, sectors, and currencies.
This can provide a layer of protection against volatility in a specific country or region. Furthermore, it allows for potentially larger growth opportunities as some emerging markets may offer higher returns on investments. The purpose of international investments is not limited to portfolio diversification and risk mitigation.
It is also used to exploit opportunities that may not be available in the domestic market. Factors such as economic growth, inflation rate, currency exchange rate, political stability, etc., can influence international investments. For example, a region with robust economic growth and a stable political environment may attract significant foreign investments.
Similarly, countries with high interest rates may draw foreign investors seeking higher returns. Thus, through international investments, individuals and businesses can broaden their investment horizons and potentially reap greater returns.
Examples of International Investments
SoftBank’s Investment in Alibaba: In 2000, SoftBank, a global conglomerate holding company headquartered in Japan, invested $20 million in Alibaba, a Chinese multinational conglomerate specializing in e-commerce. This investment is an example of international investment since a corporation based in one country (Japan) invested in a company in another (China). The investment was a significant success, as Alibaba grew to become one of the most valuable tech companies globally.
Berkshire Hathaway’s Investment in BYD: In 2008, Berkshire Hathaway, led by Warren Buffet, decided to invest in BYD, a Chinese company specializing in battery technology and clean energy. The initial investment was approximately $230 million. This is another example of international investment.
Facebook’s Investment in Reliance Jio: In 2020, Facebook purchased a
99% stake in Reliance Jio Platforms, a subsidiary of Reliance Industries and India’s largest mobile network operator, for $
7 billion. This strategic investment is another example of international investment where a U.S. tech giant invested in a booming telecommunications and digital services company in India.
FAQs on International Investments
What does International Investment mean?
International investment refers to the investment made by residents of one country in the economic activities of another country. This can take the form of either direct investment, where the investor directly acquires an interest in a company, or indirect investment, where the investor buys shares or bonds on a foreign market.
Why should I consider International Investments?
International investments offer diversification, which reduces investment risk. By investing globally, you’re not tied to the economic performance of a single country. It could also potential offer higher returns, although this comes with increased risk due to political instability, currency fluctuations, and other factors.
What are the risks of International Investments?
Some risks include currency risk, political risk, economic risk, and liquidity risk. Additionally, it might be difficult to get information about foreign companies and markets, and there may be tax implications. Always conduct thorough research and consider consulting with a financial advisor before making international investments.
How can I start investing internationally?
You can invest internationally by purchasing shares in foreign companies, buying units of mutual funds or ETFs that invest in foreign stocks, or by having directly invested in foreign real estate or businesses. Before you begin investing, it’ll be beneficial to have a solid understanding of the potential risks and returns, and to carefully plan your investment strategy.
Related Entrepreneurship Terms
- Foreign Direct Investment (FDI)
- Portfolio Investment
- Exchange Rates
- Offshore Banking
- Emerging Markets
Sources for More Information
- Investopedia: This is an extensive online resource for financial education. It’s filled with detailed guides on a myriad of finance topics, including international investments.
- International Monetary Fund (IMF): As a global financial institution, it offers a wealth of data and reports on international finance and investments.
- Bloomberg: Known for its strong business and investment coverage, it provides comprehensive information on global investment strategies, including international investments.
- Fidelity: A prominent investment services firm that offers a host of information on various investment vehicles worldwide.
