We are now living in a world where all of the major economic functions are highly globalized.
Firms can locate their production in any country or any region of the world to maximize their
performance. Individual investors can also benefit when they invest internationally rather than
domestically. This can happen because stock returns tend to covary much less across countries
than within a given country (Schwert, 1990). Thus, it is essential that students fully understand the
international dimensions of investment. Given the relatively low correlation of foreign business in
response to U.S. monetary and fiscal policies (Eun & Resnick, 1984), diversification across different
countries makes sense because it allows investors to earn a premium return by constructing
an international portfolio