In interpreting ratios such as those in Table one must be cautious about drawing the conclusion that diversification is rising as rapidly as the reported numbers rise. Suppose a Brazilian buys a U.S. international equity fund, which places its clients€™ money in Brazil€™s stock market. What happens to Brazilian and U.S. gross foreign assets and liabilities? What happens to Brazilian and U.S. internationaldiversification?

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Gross Foreign Assets and Liabilities of Selected Industrial Countries 1983-2007 (percent of GDP) 1983 1993 2007 Australia Liabilities 52 89 162 40 45 296 285 Liabilities 78 Germany 219 193 38 Liabilities Italy 23 27 130 151 43 Liabilities Netherlands 94 73 150 134 Liabilities United Kingdom 152 136 208 203 456 476 Liabilities United States 29 25 45 49 131 148 Liabilities