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What is a Country Basket?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 June 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A country basket is a type of derivative security that is designed to follow the pattern exhibited by an exchange located in a given country. This type of investment makes it possible for investors to enjoy the benefits of trading in foreign markets without having to deal with costs that can sometimes be restrictive. The typical country basket is considered an unmanaged portfolio, with the securities in the basket often traded on the world’s major markets.

The structure of a country basket calls for identifying the top securities that are native to a given country. Shares of those securities are acquired for inclusion in the basket and serve as the underlying assets for this type of derivative. The company that creates and manages the assets found in the country basket may then issue shares that are traded on various exchanges in the same way that any other stocks would trade. Investors who buy the country basket shares earn returns or incur losses based on the performance of those underlying assets.

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One of the chief benefits of the country basket is the ability to enjoy the benefits of foreign investments without having to actively manage those holdings. Since the owner of the basket is responsible for buying and selling the assets in the basket so that the value of the portfolio increases steadily, investors can simply allow their interest in the basket to ride while someone else handles all the day to day details. This form of passive management is ideal for someone who wants to invest in securities associated with a specific nation, but does not wish to spend a great deal of time tracking the activity of those assets. At the same time, investors in the basket do have the ability to monitor the activity of those assets when and as desired, effectively making it possible to be as involved in keeping up with the status of the basket’s contents on whatever basis is acceptable to each of the investors.

Another advantage to the country basket approach is that the managers are often financial professionals who have immediate access to events in the marketplace. This allows them to move with a speed that may or may not be possible for rank and file investors. Since responding to market conditions in a timely manner can make a difference between earning a return and incurring a loss, the interests of all investors are protected and help to insulate them from at least some opportunities to fail due to slow response.

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