Global diversification is attractive because foreign markets offer lower correlations and the opportunity for higher return. If the foreign currency appreciates, the domestic investor will also benefit. Increasingly integrated global capital markets would actually harm the investor because correlations would increase.

Lower correlations would result in reduced portfolio risk for the global investor. The other answer choices would actually be a detriment for an investor considering foreign markets. Foreign governments sometimes tax the interest and dividends earned by investors, thereby reducing investment return. Governments can also suspend currency convertibility, especially in times of crisis. A depreciating foreign currency would lower the dollar denominated return to a U.S. investor who invests globally.

Higher Sharpe ratios imply a higher excess return per level of risk. If correlations have increased over time or increase during times of crisis, then the risk reduction benefit of international diversification is curtailed. If corporations become more global, it would also imply higher correlations, thus diversifying across borders becomes a less effective method of decreasing portfolio risk.