Final answer:
Investing solely in U.S. multinationals is false for achieving maximum international diversification. True international diversification requires a diversified portfolio with investments from across the globe, not just U.S. companies. Multinationals may provide some diversification, but for full benefits, a range of global investments is recommended.
Step-by-step explanation:
The statement that maximum international diversification can be achieved by investing solely in U.S. multinational corporations is false. While U.S. multinationals operate across many countries and may provide some level of diversification due to their global exposure, true international diversification involves investing in a variety of assets from multiple countries and regions. This includes international stocks, bonds, and other securities which are not limited to the operations of U.S.-based companies. A diversified international portfolio spreads the investment risk across different economies, sectors, and markets, rather than concentrating it in the economic activities of a single nation's corporations.
Multinational corporations often engage in foreign direct investment (FDI) which tends to have a more long-term focus compared to portfolio investments and typically involves some managerial responsibility in the foreign country. However, solely relying on FDI or multinationals for diversification is not adequate because an investor can withdraw from portfolio investments much more quickly, providing liquidity and flexibility that direct investment cannot always match.
Therefore, to truly maximize international diversification, an investor would need to broaden their portfolio beyond U.S. multinational firms to include a range of international investments.