Unit 1 Module 2 Portfolio Management & Investment PDF

Unit 1 Module 2 Portfolio Management & Investment ================================================= Terms Relevant to portfolio Management & Investment+ ---------------------------------------------------- 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Region...

Unit 1 Module 2 Portfolio Management & Investment ================================================= Terms Relevant to portfolio Management & Investment+ ---------------------------------------------------- 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Regional & Global Investment Environment ---------------------------------------- The **investment environment** refers to the overall economic, financial, and political conditions in which individuals, institutions, and governments make decisions about investing in financial assets, businesses, or infrastructure. It includes factors such as interest rates, inflation, government policies, taxation, and regulatory frameworks, both domestically and internationally. - - **[Characteristics and Features]** ### 1. Economic and Political Stability - - ### 2. Regulation and Compliance - - ### 3. Interest Rates and Monetary Policy - - ### 4. Infrastructure and Technological Development - - **[Historical Achievements in Caribbean Investment Environment: Offshore Banking]** Caribbean countries have been prominent players in **offshore banking** for decades, creating a unique financial niche that has significantly impacted their economies. ### 1. Rise of Offshore Financial Centers (OFCs) Several Caribbean nations have positioned themselves as offshore financial centers, providing a range of services like wealth management, tax planning, and investment services for international clients. Key players include: - - - ### 2. Tax Efficiency and Legal Protections Offshore financial centers in the Caribbean have historically attracted global investments due to their **tax efficiency**, offering lower tax rates, no capital gains taxes, and sometimes full tax exemptions for international businesses. This environment has made them appealing for multinational corporations and high-net-worth individuals seeking to optimize their tax liabilities. In addition, these jurisdictions offer **strong legal protections** for financial assets, with stringent regulations around investor confidentiality. The legal frameworks in the Bahamas, Cayman Islands, and Bermuda were specifically designed to protect foreign investments. ### 3. Evolution and Modernization (21st Century) In the past two decades, Caribbean offshore centers have modernized their regulatory environments in response to international pressure from the OECD, EU, and FATF. Many have adopted new laws for **anti-money laundering (AML)**, **counter-terrorism financing (CFT)**, and **automatic exchange of tax information** (e.g., the Common Reporting Standard or CRS). These reforms have allowed Caribbean nations to remain competitive in the global investment landscape, maintaining a balance between investor privacy and compliance with global standards. **[Financial Assets and Investments in the Caribbean]** ### Financial Assets - - - - ### Investment Opportunities - - - **[Present Investment Climate in the Caribbean]** The Caribbean's **current investment environment** is shaped by the following trends: - - - Despite these challenges, the Caribbean remains an attractive region for global investors, especially in the areas of financial services, tourism, and real estate. Types of Investors ------------------ Investors can be categorized based on their characteristics, goals, knowledge, and tax considerations. ### 1. Individual Investors **Characteristics**: - - - **Risk Appetite**: - - **Tax Considerations**:  Subject to personal income tax rates. - **Information Access**: - ### 2. Corporations/Institutional Investors Institutional investors are large organizations (such as pension funds, insurance companies, mutual funds, hedge funds, and banks) that invest on behalf of their members, clients, or shareholders. - **Characteristics**: - - **Risk Appetite**: - - - **Tax Considerations**: - - **Information Access**: - - ### 3. Investors with Different Marginal Tax Rates The marginal tax rate refers to the percentage of tax applied to an investor's next dollar of income. - **Characteristics**: - - - **Impact on Investment Decisions**: - - **Strategies**: - - ### 4. Informed Investors These are investors who possess superior knowledge, access to proprietary data, and can analyze market information effectively. Typically, institutional investors, hedge funds, or very experienced individual investors (e.g., accredited investors) fall under this category. - **Characteristics**: - - - **Advantages**: o Can exploit market inefficiencies or take advantage of arbitrage opportunities. - - **Risk Appetite**: - ### 5. Uninformed Investors These investors lack deep market knowledge or access to proprietary information. This group often includes less experienced individual investors, some mutual fund investors, and others without the same level of market insight. - - - - - - - - **Key Differences across Types of Investors:** - - - - Ethics in the Financial Services Industry ----------------------------------------- Ethics in the financial services industry isn't just about following rules; it's about creating a trustworthy environment for all. When financial professionals act with integrity, competence, and confidentiality, they help build a stable, transparent industry that serves the public and strengthens the economy. 1. *[What is Ethics?]* - 2. *[Importance of Ethics in the Financial Services Industry]* - - - 3. *[Codes of Ethics in Financial Services]* Ethical codes in the financial industry ensure that professionals act responsibly, fairly, and with the interests of their clients in mind. Key principles include: - - - Steps in the Portfolio Management Process ----------------------------------------- The portfolio management process is a structured approach to investing that helps achieve an investor's financial goals through careful planning, analysis, and continuous monitoring. By following each step, from policy creation to performance review, investors can maintain a balanced and effective portfolio. 1. **[Development of a Policy Statement]** - - 2. **[Analysis of Macro-Economic Conditions]** - - 3. **[Analysis of Industries and Sectors]** - - 4. **[Micro-Analysis of Securities and Firms]** - 5. **[Development of an Investment Strategy]** - - 6. **[Implementation of the Plan Created]** - - 7. **[Monitoring and Updating the Portfolio's Performance]**  **Purpose**: Regularly reviews the portfolio to ensure it continues to meet the investor's objectives. - Basic Assumptions of the Markowitz Investment Theory ---------------------------------------------------- ### [1. Investors View Each Investment by Its Probability Distribution of Expected Returns] ### [2. Investors Maximize Expected Utility Over a Single Period] - - ### [3. Investors Estimate Risk Based on the Variability of Expected Returns] ### [4. Investment Decisions Are Based Solely on Expected Return and Risk] - - - - ### [5. Investors Prefer Higher Returns and Lower Risk] - - Efficient Market Hypothesis (EMH) and Its Sub-Hypotheses -------------------------------------------------------- ### 1. Weak Form Efficiency - - - - ### 2. Semi-Strong Form Efficiency - - - - ### 3. Strong Form Efficiency - - - - ### [Evidence in Favor of EMH] 1. - 2. - 3. - 4. - ### [Evidence Against EMH] 1. 2. - 3. - 4. #### 5. Mean Reversion - - The Relationship between Behavioral Finance and Efficient Market Hypothesis (EMH) --------------------------------------------------------------------------------- ### *[Behavioral Finance]* - - - - - - - - - ### *[Influence of Social Sciences on Behavioral Finance]* - - - - - - - - ### *[Comparing EMH and Behavioral Finance]* +-----------------------+-----------------------+-----------------------+ | | **Efficient Market | | | | Hypothesis (EMH)** | | +=======================+=======================+=======================+ | **Investor** | Assumes investors are | Recognizes that | | | rational and maximize | investors are often | | **Rationality** | utility. | irrational due to | | | | biases and emotions. | +-----------------------+-----------------------+-----------------------+ | **Information | Prices reflect all | Prices can deviate | | Reflection** | available information | from fundamental | | | almost instantly. | values due to | | | | investor sentiment | | | | and biases. | +-----------------------+-----------------------+-----------------------+ | **Market** | Believes markets are | Suggests markets are | | | efficient, and | inefficient at times, | | **Efficiency** | anomalies are rare. | as psychological | | | | factors create | | | | persistent patterns | | | | and anomalies. | +-----------------------+-----------------------+-----------------------+ | **Usefulness of | Technical and | Behavioral analysis | | Analysis** | fundamental analysis | of biases and | | | should not yield | sentiment can | | | consistent excess | identify trends and | | | returns. | anomalies. | +-----------------------+-----------------------+-----------------------+ ### *[Applications in Real-World Investing]* - - - - Systematic vs. Unsystematic Risk ================================ Systematic Risk --------------- - - - Unsystematic Risk ----------------- - - - Diversification --------------- - -