Final answer:
Investing in international mutual funds comes with advantages such as liquidity, professional management, and diversification, but also has drawbacks like higher costs and potential for increased risks due to currency fluctuations and foreign market volatilities. A local fund may offer familiarity and lower costs, whereas an international fund provides a broader investment scope and possible higher returns. An example includes a U.S. investor buying U.K. bonds, which requires exchanging currencies without management responsibility.
Step-by-step explanation:
The advantages and disadvantages of investing via international mutual funds offer valuable insights into global investment strategies. One advantage of mutual funds is liquidity, meaning investors can easily convert their fund shares into cash due to high demand. These investments are also typically professionally managed, which saves investors time and reduces the need for personal investment knowledge. Diversification is another significant advantage, allowing investors to achieve increased expected returns without taking on additional risk. However, a potential disadvantage is the cost, as diversified portfolios can be expensive.
Comparatively, investing in a local fund may have lower costs and be more familiar to investors, but it lacks international exposure. Conversely, investing in an international fund can provide a broader range of investment opportunities and potential for higher returns, but it also introduces additional risks such as currency fluctuations and geopolitical events.
An example is a U.S. investor purchasing U.K. government bonds or depositing money in a British bank. Such a portfolio investment doesn't involve management responsibilities and requires currency exchange, supplying U.S. dollars to obtain British pounds.