International Diversification and Risk International diversification benefits induce investors to demand foreign securities (the so called buy-side). If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return,or if it increases the expected return for a given level of risk,then the security adds value to the portfolio. A security that adds value will be demanded by investors,bidding up the price of that security, resulting in a lower cost of capital for the issuing firm.International Diversification and Risk International diversification benefits induce investors to demand foreign securities (the so called buy-side). If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, or if it increases the expected return for a given level of risk, then the security adds value to the portfolio. A security that adds value will be demanded by investors, bidding up the price of that security, resulting in a lower cost of capital for the issuing firm