96. International Diversification: investing in different markets.

International diversification is a process which involves expanding an investment portfolio across two or more countries. It became a popular practice in the 1990s, as advances in tech

nology allowed for better communication across borders, and continues to be a common investment strategy.

International diversification is partially based on internalization theory, which suggests that corporations reduce costs and improve functionality by "internalizing," or setting up plants in various countries so that the corporation can absorb more local responsibility (and avoid paying someone else to do it).

A chief benefit of international investment diversification is the ability to spread currency risk; while a market in one region or nation may collapse, it is unlikely that all markets will collapse. International diversification may also reduce company costs and allow for quicker innovation.

Despite its popularity, there are serious barriers to international diversification. This includes language problems, the threat of political upheaval damaging capital, uneven levels of government transparency and the inability to guarantee redress in the event that things go awry.

International diversification is a primarily long-term approach which may not yield many benefits in the short term. Because of this, it requires a time commitment; that time depends on the particular circumstances of each company.

Managed funds enable you to invest while allowing you to pass the burden of management and investment strategy into the hands of specialists. Even if you have never invested before, a managed fund can make it easy for most people to enter the investment market. You don't need a lot of expertise to become an investor, because you can leave the investment decisions to professionals.

By pooling your money with other investors, the fund manager has the buying power to invest in many different asset classes and sectors on your behalf to spread your investment. The professionals managing the fund locate investment opportunities and work to achieve better results than you might expect to achieve on your own.

97. Translation exposure

The risk that a company's equities, assets, liabilities or income will change in value as a result of exchange rate changes. This occurs when a firm denominates a portion of its equities, assets, liabilities or income in a foreign currency.

Accountants use various methods to insulate firms from these types of risks, such as consolidation techniques for the firm's financial statements and the use of the most effective cost accounting evaluation procedures. In many cases, this exposure will be recorded in the financial statements as an exchange rate gain (or loss).

98. Transaction Exposure.

The risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.

Often, when a company identifies such exposure to changing exchange rates, it will choose to implement a hedging strategy, using forward rates to lock in an exchange rate and thus eliminate the exposure to the risk.