The benefits of international portfolio investment Essay

The benefits of international portfolio investment - Essay Example There are numerous benefits of internationalizing the portfolio. By internationalizing, the individual or firm will be able to minimize the risk; invest in growing markets thus benefiting from their growth; hedge the prices of goods in the consumption basket; enjoy higher return than expected; diversify investments; and enjoy lower variation of return. High economic growth leads to the higher GDP and high growth level. This attract other investors from other countries in invest in the growing economies. Growing economies are determined by the World Bank as the ones which have average income levels but high economic growth levels. These emerging economies can be of Middle East, Asia, Africa or Latin America. The growth levels attract the foreign investment which further improves their economy. These economies including some of the developed ones such as Japan and Netherlands provide tremendous opportunities to foreign investors. The financial investment in these countries enable indiv iduals and firm to increase their investment by two fold within a couple of years. Hence, it is seen as a good opportunity by investors. However, the small economies are still riskier compared to developed economies. In small economies, the prices might fluctuate rapidly and in case of liquefying the investment, losses might have to be borne. Also, the emerging economies might not be too stable politically. Thus, there is a political risk involved such as instability of political system, change of policies regarding foreign investment and remittances, change in foreign exchange policy and change of property rights. These factors make the investment in emerging markets riskier compared to developed economies where there is political stability. ... (Perry) However, the small economies are still riskier compared to developed economies. In small economies, the prices might fluctuate rapidly and in case of liquefying the investment, losses might have to be borne. Also, the emerging economies might not be too stable politically. Thus, there is a political risk involved such as instability of political system, change of policies regarding foreign investment and remittances, change in foreign exchange policy and change of property rights. These factors make the investment in emerging markets riskier compared to developed economies where there is political stability. (Yavas, 2007) In contrast to this, the overall portfolio risk will be reduced because there will be less, no or negative correlation between markets which will be beneficial for the investor. On the other hand, there is a difference in taxes, potential information and forecasts. Some of the forecast made by countries might differ significantly from actual result. Thus, th e exact picture or perfect information regarding investment might not be available. The markets are seemed to have integrated over the years and are considered negatively or not at all correlated to each other. Thus, the investors benefit from investing worldwide because it one investment’s return are falling, other investment’s return might increase or remain same. Thus, the investor will be better off. However, each country has its own investing and currency exchange policy which might be a hindrance for the investor. The investor benefits from ‘pure diversification’ by investing worldwide but might face policy restrictions. (Bartram & Dufey, 2001) Factor influencing the structure of International Portfolio Investment The factors

The nature of the budgeting and planning process Essay

The nature of the budgeting and planning process - Essay Example The overall purpose of the budgeting process is to ensure that the organization has enough finances of operations and expenditure. The first purpose of the budgeting process is communication, where each department in the organization communicates the need for resources and how the resources will be used. This is done by explaining the volume of activities that the department will engage in and the amount of resources that will be needed. The budgeting and planning process is also important for coordination of tasks in the organization, since the different departments in the organization perform interrelated task (Hansen and Wim, 2004). Coordination of processes is achieved when the different departments provide a plan for their resource allocation and the relation to the resource allocation from other departments. Budgets are also used for planning the activities of the organization for a specified period. This is achieved by preparing budgets that predict resource usage for forthcoming fiscal periods. When these budgets are prepared, the organization can determine the resource needs and, therefore, prepare the necessary financial resources for acquisition of the planned resources. Budgets are also used for control and motivation, where the budgets act as a measure of performance and improvement. This means that the prepared budget is used as a standard of measurement of performance, and the different departments are motivated to improve their performance according to the budget allocated. The nature of the budgeting and planning process is reflected by the characteristics of the budget prepared by the departments and the organization. The budget can be defined as a plan for the allocation of financial resources to the various processes in the organization, therefore, the budgeting and planning process refers to the steps taken to prepare and measure organizational performance using a budget. The requirements of the budgeting and planning process can then be inferred from the above definition of a budget. The budgeting and planning process requires knowledge of the required resources by each department, the expected usage of resources, the forecast of the cost of resources, and the expected financial inflows and outflows. Types of Budgets According to Sean, Garrison and Noreen (2008), budgets can be classified into many types, including zero-based budgets, incremental budgets, fixed and flexibl e budgets. These budgets classifications are done according to the basis for budget preparation, whether the budget is prepared according to activity level, fiscal periods, or resource availability. Zero-based budgeting refers to a budgeting method where each department is required to provide a justification of all the expenses presented in the budget statement. Traditional budgeting methods require a manager to add or subtract amounts from the previous fiscal period budget, however, zero-based budgets start from a zero baseline and all expenditures have to be justified. Conversely, incremental budgets are based on the previous period’