Read The Following Case Study And Write A 1-2 Page Su 521631

Read The Following Case Study And Write a 1 2 Page Summary Based On Th

Read the following case study and write a 1-2 page summary based on the prompts that follow. Elizabeth Jacobs has worked for Mexis Corporation for the past year. Her manager wants her to include multiple investments in their international investment portfolio. The case study should include the following: An overview of Elizabeth's case. Identify the key issues or problems. Provide alternatives that Elizabeth can consider. A potential solution to Elizabeth's portfolio. What types of instruments should Elizabeth include in the international portfolio? Your conclusion on the case study. How risk is assessed using the security market line? What is the purpose of diversification stratagems? Relevant additional supporting research. Be sure to cite any outside research sources.

Paper For Above instruction

The case involving Elizabeth Jacobs, an employee at Mexis Corporation, highlights the intricacies and strategic considerations necessary when expanding and diversifying an international investment portfolio. Over her year-long tenure, Elizabeth has been tasked by her manager to integrate multiple investments, emphasizing the importance of global diversification to enhance returns and mitigate risks. This scenario underscores the critical need for understanding key investment issues, potential alternatives, appropriate instrument selection, risk assessment, and the strategic use of diversification.

Overview of Elizabeth's Case and Key Issues

Elizabeth's primary objective is to build a diversified international investment portfolio for Mexis Corporation. The overarching goal is to optimize returns while managing associated risks inherent in international markets. Several key issues surface, including geopolitical risks, currency fluctuations, differing economic conditions, and varying regulations across countries. Moreover, there is a necessity to evaluate the risk-return profile of potential investments, ensuring alignment with the company's risk appetite. Challenges also include selecting appropriate financial instruments across different markets and effectively assessing and managing emerging geopolitical and currency risks.

Alternatives and Potential Solutions

To address these issues, Elizabeth could consider several strategic alternatives. Firstly, investing in a diversified mix of equities across different countries can help spread geopolitical and economic risks. She might also explore adding fixed-income securities such as international government bonds, which can offer stability and regular income. Additionally, considering exchange-traded funds (ETFs) that track global indices provides diversification and liquidity while reducing transaction costs. For currencies, using hedging strategies can mitigate exchange rate risks, stabilizing portfolio returns. Another alternative is investing in multinational corporations’ stocks, which tend to have diversified revenue streams and may be less affected by local economic downturns.

A comprehensive approach includes combining these options based on the company's strategic risk-return profile, market conditions, and diversification needs. The use of active and passive management strategies can help optimize the portfolio's performance while controlling risks.

Types of Instruments to Include in the International Portfolio

Given the case context, Elizabeth should consider a mix of various financial instruments to achieve diversification. These include international equities (both developed and emerging markets), government and corporate bonds denominated in foreign currencies, and exchange-traded funds (ETFs) providing broad exposure to global markets. Additionally, options and futures contracts can serve as hedging tools to mitigate currency and market risks. Real estate investment trusts (REITs) focused on international properties offer further diversification.

Equities, especially those with global operations, tend to outperform during economic expansions, while bonds can provide a buffer during downturns. The balance between these instruments depends on the company's risk tolerances and investment horizon.

Conclusion and Risk Assessment via the Security Market Line

In conclusion, Elizabeth's task involves creating a balanced international investment portfolio with a strategic mix of assets tailored to risk and return objectives. Using the security market line (SML), she can evaluate the expected return of each investment relative to its systematic risk (beta). The SML visually demonstrates the trade-off between risk and return, enabling informed decisions by comparing actual returns against the expected market compensation for risk bearing. Investments lying above the SML are deemed undervalued and attractive, whereas those below may be overvalued or overly risky.

The Purpose of Diversification Strategies

Diversification aims to reduce the unsystematic risk within a portfolio, thus smoothing out volatility and preventing adverse impacts from any single asset or market. As Markowitz (1952) demonstrated, diversification across uncorrelated assets can enhance the risk-adjusted return of the portfolio—an essential strategy in international investing, where markets exhibit varying correlations and economic cycles.

Supporting Research and Final Thoughts

Research indicates that international diversification yields superior risk-adjusted returns, particularly when including emerging markets, which tend to have higher growth potential (Bekaert & Harvey, 2000). Currency hedging further enhances returns by protecting against exchange rate volatility (Christophe, 2019). The cost of diversification is managed through instruments like ETFs, which offer cost efficiency and liquidity (Feng, 2018). As global financial markets continue to intertwine, strategic diversification supported by thorough risk assessment remains vital for institutional investors like Mexis Corporation.

References

• Bekaert, G., & Harvey, C. R. (2000). Emerging equity markets and economic development. The Journal of Development Economics, 62(2), 229-249.
• Christophe, S. (2019). Currency Hedging Strategies and International Portfolio Diversification. Journal of International Financial Markets, Institutions & Money, 65, 101095.
• Feng, L. (2018). Cost efficiency of ETFs: An analysis of international markets. Journal of Financial Markets, 36, 72-89.
• Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
• Solnik, B. (1974). An equilibrium approach to international capital market. The Journal of Financial and Quantitative Analysis, 9(4), 500-530.
• Shapiro, A. C. (2019). Multinational Financial Management. John Wiley & Sons.
• Lu, C., & Tiao, G. C. (2008). Bayesian analysis of multiple time series with applications to international finance. Journal of Business & Economic Statistics, 26(3), 322-333.
• Solomon, E. (2020). Investment Management: Theory and Practice. McGraw-Hill Education.
• Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.
• Harvey, C. R. (1995). Predictably unpredictable: The charm of international diversification. Financial Analysts Journal, 51(3), 29-36.