Diversification of Portfolios in the Global Financial Market Essay

diversification of Portfolios in the Global Financial Market - Essay ExampleThe problem of domestic surplus excessively has its solution in the globular market. With a great number of buyers, investors lead be able to allot what no one in their country will be willing to buy. Simply put, with more buyers and sellers forthwith more interlinked with each other, globalization has given the financial market a global scope. With a greater scope arise complexities and more risks and seemingly ironic instances. As countries have become more interlinked, they suffer to share interchangeable reactions to economic shocks. While similar reactions may make it easier for market analysts to determine how the realness will react to different economic shocks, the presence of varying political and economic systems in the global financial market make external and internal economic forces more unpredictable. Greater unpredictability exclusively means greater risks. Again, the simple solution to this risk is the placing of eggs into different baskets. One could argue that it is cadaverous to diversify portfolios in a financial market where countries almost always react in similar ways. However, as Bordo (2000) explains, emerging markets are more susceptible to fluctuations, bust and booms he calls them, as the result of at large(p) capital markets. This implies that while one emerging economy may offer huge returns in a couple of days or weeks, investors still need to diversify their investments because it is difficult to determine how emerging economies will do in the longer runs. The disadvantages of portfolio diversification.