Another significant way of managing risk is by arresting the exchange rate fluctuations which is only possible by internalization of the portfolio holdings. International currency rates are subject to fluctuations which are in most cases unpredictable. The exchange rate risk has been affecting the portfolio managers for quite a long time and the based way to manage the risk was to diversify their holdings in international economies (Biger, 1979). Portfolio managers could strategically internationalize their holdings in countries with strong currency which would reap supernormal returns for the portfolio managers. Internationalization of holdings would facilitate the portfolio managers to access a bigger market. The portfolio managers could internationalize their holdings in countries that are less competitive which would yield best returns from the investment. This would lessen the market-oriented risks that would be faced by the portfolio managers. Thus, the portfolio managers could internationalize their holdings in order to engage in the diversification of portfolio assets. The international diversification of portfolio assets would help the portfolio managers to achieve high risk-adjusted return. Thus, this would mean that the portfolio managers could invest and internationalize their holdings to experience less volatility. This experience of less market volatility implies that the portfolio managers would be able to manage any market risks by internationalizing their holdings.
It can be concluded that it is the 1991 version of Fama’s EMH that is found suitable for the market conditions in the UK as the market represents the weak form efficient and follows the random walk model. On the other hand, investigation and examination on the internationalization of the holdings of the portfolio managers reveal that it is appropriate and a positive step towards risk management. As far as the behavioral finance is concerned, some challenges such as individual analysis, limited predicted power and contradictory implications have suggested that it is quite different from the modern perspectives of finance. Lastly, the MPT by Harry Markowitz has suggested that portfolio managers are able to maximize the returns and mitigate the risk.