Page 64 - Demo

%u062c%u0645%u064a%u0639 %u0627%u0644%u062d%u0642%u0648%u0642 %u0645%u062d%u0641%u0648%u0638%u0629 %u0640 %u0627%u0625%u0644%u0639%u062a%u062f%u0627%u0621 %u0639%u0649%u0644 %u062d%u0642 %u0627%u0645%u0644%u0624%u0644%u0641 64 %u0628%u0627%u0644%u0646%u0633%u062e %u0623%u0648 %u0627%u0644%u0637%u0628%u0627%u0639%u0629 %u064a%u0639%u0631%u0636 %u0641%u0627%u0639%u0644%u0647 %u0644%u0644%u0645%u0633%u0627%u0626%u0644%u0629 %u0627%u0644%u0642%u0627%u0646%u0648%u0646%u064a%u0629How can international companies achieve the benefits of global diversification through foreign direct investment?When international companies choose countries for foreign direct investment, they can choose based on achieving the benefits of international portfolio diversification. According to international portfolio theory, these companies should choose the countries whose investments are less correlated with those of the parent company to reduce portfolio risk and achieve diversification benefits.Among these countries with the least correlation with the parent company's investments, the company can choose the country with the highest return at the lowest possible risk, or the country with the lowest possible risk and the highest return compared to other countries.Example:- A multinational corporation in the U.S. is considering the location of a new investment project. The new project constitutes 40% of the corporation%u2019s total funds. The next table providesthe characteristics of the proposed project in the U.S. and Egypt. The risk-free rate is 5%. What is the portfolio variance, standard deviation, and Sharpe ratio for the overall firm if the new project is in the U.S. or Egypt?Correlation with existing businessStandard Deviation(%)Return (%)Existing U.S. business 15 20New project in the U.S. .90 17 20New project in Egypt .20 20 20%uf06c In terms of return, neither new project has an advantage. The expected return of the overall firm if the new project is in the U.S. or Egypt will be 20%.%uf06c In terms of risk, the new project is expected to exhibit slightly less variability in returns (less standard deviation) if located in the U.S.The variance of the firm overall if the new project is in the U.S is: Var (Rp) = (.6)2(15%)2 + (.4)2(17%)2 +2(.6) (.4) (15%)(17%)(.90)= 0.025