Today mainstream academic views hold position that capital markets operate with high degree of efficiency what is expressed in Efficient Market Hypothesis (EMH). The hypothesis was introduced by Louis Bachelier`s The Theory of Speculation (1900) but the work was ignored for a long period. The efficient market hypothesis emerged as a prominent theoretic position in the mid 1960s. Works of Paul Samuelson and Eugene Fama who published further evidence supporting the hypothesis and became their w...
Credit risk, or the risk that money will not be returned, has been common in the history of banking. This is a major, perhaps the most important type of risk that has been present in the operations of finance, trade and commerce of ancient cultures to the present. Numerous failures, large and small, in combination with the corresponding economic and social impact further accelerated the importance of credit risk management throughout history. Credit risk management is a process that involves ...
Basel II is the international standard that banking regulators use when creating regulations on how much capital banks need to put aside to guard against financial and operational risks being faced. The Basel II's main aim is to introduce a more comprehensive and risk-sensitive treatment of banking risks to ensure that regulatory capital bears a closer relationship to credit and other risk.(Source: Introduction to Banking by Barbara Casu,page 173). Meanwhile, to comply with the Basel II, bank...
Existing literatures forecasted CIC as it is one of the most significant issues influencing the liquidity of the financial market. Given that the Bank of Mauritius (BOM) is the sole distributor of currency it may not forecast the demand for the currency precisely as it is strongly influenced by the non-banking sector. Therefore this dissertation introduces an ARIMA and regression model to forecast CIC in the case of Mauritius. The BOM did not undertake a similar study earlier; hence this pape...
Nowadays, many investors are using some theory in making investment decision. The introducing of Post-modern Portfolio Theory offers a structure that helps to recognize the desirable for upside and downside volatility. It extent the traditional Modern Portfolio Theory, also referred to as Mean-Variance Optimization. Over years, some important limitations of Modern Portfolio Theory have been founded. The causes of the unsatisfied aspect of Modern Portfolio Theory are the assumption of "varianc...
American option, which could be exercised optimally before the expiration date, enables the holders choose to buy or sell the option according to their judgement. It takes a large proportion of traded options around the world with the increase in the type of derivatives. In reality, the pricing of American option is an optimal stopping problem as consumers would choose the best stopping time to achieve the highest payoffs. In contrast, the European option which could only be exercised at the ...
What is an exchange rate? Are terms like managed float, dirty float, fixed exchange rates, floating exchange rate, pegged exchange rate, crawling peg the same? Which type of exchange rate regime does India follow? What is a currency crisis? In recent times the rupee is becoming weaker against the dollar every day, what are the reasons for the same and what steps is the RBI taking to control the same. So, is the rupee depreciating or devaluing against the dollar? Support your conclusion by giv...
Working capital also known as gross working capital is defined as the short-term investment i.e. in assets like marketable securities, stock, accounts receivables and even cash (these are the four main components of working capital). Other terminologies of working capital include: net working capital which is current assets less current liabilities, net-operating working capital which is current assets less non-interest bearing current liabilities (marketable securities, inventories, cash, an...
Active and passive investing has been debated for years on which investment style provides a better return. Active investing is an investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions (investopedia.com, 2010). In order to be an active investor, investors need to be highly involved. This often means checking price movements of investments multiple...
Regardless of the fact that a lot of studies have been done to prove that passive investing is superior to active investing, I believe that due to the time constraint, a passively managed portfolio would see very little to no change. Since the purpose of the exercise was to acquire some insight as to what it was like to invest, I decided that an actively managed portfolio would be best for me. As a result of my decision, I went on to aggressively trade stocks quite frequently. The only two st...
