Research On The Impact Of Exchange Rate Risk To International Diversification In Security

International diversification in security can reduce systemic risk and share the benefits of global economic development. However, International diversification will meet exchange rate risk. So it is necessary to research the impact of exchange rate fluctuation on international diversification in security as well as find out how to decrease exchange rate risk.Chapter 1 is introduction and summary. Based on the analysis of different arguments, we provide the innovation of this research. Firstly, most of the former researches focus their attention on United State investors. But we choose Japan, who bears some analogies to China in some ways. Secondly, we research difference impact of exchange rate fluctuation on international diversification in security between in the situation of capital account control and capital account liberalization.In chapter 2, we discuss that the risk of exchange rate as well as the effect of exchange rate to the stock price are increasing in the course of capital account liberalization.In chapter 3, we introduce the formula of yield and risk of international stock investment. To the effect of exchange rate to the stock price, we compare the situation of crisis time with non-crisis time and conclude that the former is bigger than the latter.In chapter 4, an empirical evidence for Japan shows that exchange rate fluctuation (USD to Japanese yen) has more effect on Dow-Jones Average as well as the loss of exchange rate after the Japanese government declare that Japanese yen can be exchanged for foreign money freely.In chapter 5, we suggest that QDII should forecast the trend of exchange rate correctly and pay attention to the extent of capital account liberalization as well as make use of various ways to decrease exchange rate risk.