Portfolio Diversification Essay

Great Essays
Question #1 - What does the term portfolio diversification mean? Explain in details and give specific examples special in finance.
The term portfolio diversification is defined as “investing in different asset classes and in securities of many issues in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country).” (Nasdaq n.d.) One describes the theory of portfolio diversification as not putting all your eggs in one basket.
Portfolio Diversification is noted as a foundational concept in investing. It can be catastrophic when too much thought is placed into it and some investors end up settling for average performance because of over-diversification.
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A stock exchange may be defined as a market where stock buyers connect with stock sellers. Therefore, a stock exchange does not own shares. Stocks may be traded one or several possible exchanges such as the New York Exchange (NYSE). It is important for one to understand that the relationship between exchanges and companies, and the ways in which the requirements of different exchanges protect investors, although stocks will be most likely trader through a broker. The main or primary function of an exchange is to help provide liquidity, which implies giving sellers a place to liquidate their shareholdings.
Equity is defined by Investopedia as “the value of an asset less a number of all liabilities on that asset.” (n.d.). The definition of equity varies on the context and asset related. In general finance, equity is implied as one’s degree ownership in any asset after all debts associated with that asset are paid off.
Stockholders’ equity may also be known as shareholders’ equity. It is referred to as the book value of the company, which derives from two sources. The money which was originally invested in the company is classified as the first and original source. Retained earnings are the second source that the company is able to build over time through its
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Central banks are routinely involved in the international financial markets through foreign exchange intervention. In addition, other government agencies frequently borrow abroad. (textbook n.d.)

Question#6 - What is the importance of regulating asymmetries?
Regulating Asymmetries is important because it seeks to explain why financial centers whose governments historically imposed the fewest restrictions on foreign currency banking, became the main Eurocurrency centers.

Question #7- What is the problem of bank failure? Explain the concept in details.
Bank failure arises when a bank lacks the ability to meet its obligation to its depositors and other creditors. They borrow money to offer loans and to purchase other assets, but some banks borrowers may find themselves unable to repay their loans, or the bank’s assets may decline in value for some other reason.

Question #8 - How does the international regulatory cooperation work? Explain in

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