Answer to Question 1
Portfolio diversification is important in international trade because parties of the trade are better off by allowing themselves to reduce the risk of the return on their wealth. Traders can divide their wealth among wider amounts of assets in turn reducing the amount of money they have riding on each individual asset.
Answer to Question 2
This figure shows that since the 1980s, United States foreign assets and liabilities have both increased rapidly. However, liabilities have risen faster than assets, resulting in a substantial net foreign debt.
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