Question

Question 10 A multinational companies will likely benefit least from diversifying if the economies of countries are highly correlated

True or False

Answer 1

TRUE

The multinational companies are least likely to benefit from diversifying if the economies of countries are highly correlated.

To get the most out of diversifying, the economies of the countries must be highly uncorrelated. When the economies of the countries are highly uncorrelated then when the economies in some countries are not doing well, then the company is likely to benefit from other contries in which the economies are in good shape.

This is true even for stock portfolio diversification. To get the highest diversification benefits, the stocks in the portfolio must be highly uncorrelated.