Chartered Investment Manager (CIM) Practice Exam · Question
When considering international diversification for a Canadian portfolio, what is a primary benefit beyond simply seeking higher returns?
International diversification helps reduce overall portfolio risk because foreign markets and asset classes often have lower correlation with the Canadian marke
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Question: When considering international diversification for a Canadian portfolio, what is a primary benefit beyond simply seeking higher returns?
Answer options: ✅ Reducing overall portfolio risk through lower correlations with domestic assets.
- Eliminating all foreign exchange risk.
- Ensuring the portfolio is always invested in the fastest-growing economies.
- Avoiding Canadian income taxes altogether.
Correct answer: Reducing overall portfolio risk through lower correlations with domestic assets.
Explanation: International diversification helps reduce overall portfolio risk because foreign markets and asset classes often have lower correlation with the Canadian market. This means that when the Canadian market is underperforming, other markets may be performing better, thus smoothing overall portfolio returns.
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Other Canadian certifications candidates often prepare for alongside this one.