Suppose that you are holding a portfolio consisting of stocks of companies based and operating in countries
Question:
Suppose that you are holding a portfolio consisting of stocks of companies based and operating in countries A and B. Discuss whether the diversification benefits will be mitigated or reinforced if each one of the following changes occurs, relating your discussion to the potential change in the correlation between the securities in your portfolio:
a. There is a dangerous virus outbreak affecting the whole region where the two countries are located.
b. After the adoption of a regional trade agreement, the two countries lower the trade tariffs on imported goods.
c. The number of cross-border mergers & acquisitions between the firms from the two countries has recently increased.
d. Exchange rate volatility between the currencies of the two countries is expected to increase substantially over the next 5 years. (An explanation or relating theory should be mentioned in order to rely on your answers)