International Risk: Investing Abroad Could Cost You

Investing abroad is a source of several types of international risk. As an investor, you need to be aware of what types of international risk are present. Here are a few things to consider about the different sources of risk with international investments.

Currency Risk

One of the most common types of risk that you will have to deal with is currency risk. Every currency is worth a different amount when compared to another currency. If you have to convert your money into a foreign currency in order to invest in a foreign investment, there is a chance that you could lose money on the transaction. For example, let's say that you invested $1000 into a foreign stock. Over the course of a year, the stock increase 10 percent in value. Then you decide to sell your shares and convert the money back into dollars. When you do this, the value of the dollar has declined in value. By the time you are done with the transaction, you might only have a 7 percent increase in value. If the stock did not do so well, you could potentially lose money on the deal. Therefore, it is important for you to remember the risks that are present when dealing with foreign currencies.

Economy Risks

When you are investing in a foreign country, you have to be very careful that you do your homework about that country's economy. Many of the countries do not have stable economies and they can be negatively affected by the smallest things. If you are not careful, you could potentially put your money into a volatile economy that is on the verge of collapsing. When this happens, you could lose all the money that you have invested. 

Political Risks

Another big risk that you will have to deal with is political risk. When you invest in a foreign country, you have to feel comfortable about the political situation that is at hand. In many cases, governments can be overthrown and a new government will step in and take over. When that happens, the value of your investment could be nothing. It is going to be to your advantage to try to find countries that have stable governments in place before putting any money into the foreign investment. 

Lack of Information

The lack of information surrounding investments is another risk that you are going to have to deal with. Many foreign countries do not have the same standards as the United States when it comes to financial reporting. This means that you may have problems dealing with the lack of information. It could be much more difficult to find the information that you need about a particular company before you invest. This could lead you to making a poor decision when it comes to investing in a company that you know little about. When this happens, you could be putting your money into a company that is on the verge of trouble. 

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