U.S. assets are only a part of the world portfolio. International capital markets offer important opportunities for portfolio diversification with enhanced risk–return characteristics.

Exchange rate risk imparts an extra source of uncertainty to investments denominated in foreign currencies. Much of that risk can be hedged in foreign exchange futures or forward markets, but a perfect hedge is not feasible unless the foreign currency rate of return is known.

Several world market indexes can form a basis for passive international investing. Active international management can be partitioned into currency selection, country selection, stock selection, and cash/bond selection.