Assignment 2: High-Risk Investments Custom Work for Kei

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

We chose Bernard Madoff’s case because we thought that we could relate his case to many unethical behaviors. The analysis can be made on decision making and lack of ethical training which we think is an important topic to focus on this course.

1. Explain why an individual investor might want to invest in an international growth fund?

Michael Lewis’s novel, Flash Boys, gives an in depth look at the corruption that has occurred in the U.S financial system since 2008. With a focus on high frequency trading (HFT), Lewis shows how a group can bend and twist regulations, and find loopholes in the market at the cost of the American investor. However, Lewis stresses that this this could not be done without major collusion within the financial system. HFT could not have held such a deep grasp on the market without help from the banks, their dark pools, and the people who are entrusted to run the U.S markets, the exchanges. Flash Boys shows, through the stories of Brad Katsuyama, Sergey Aleynikov, and everyone who helped create IEX, that there are solutions to these criminal acts

Invesco (NYSE: IVZ) is one of the world's leading global investment companies with a diversified portfolio of institutional, retail and high net-work clients that form the foundation of their business model. As of the close of their latest fiscal financial reporting period of March 31, 2013, Invesco has $729.3B in assets under management (AUM), earning an adjusted operating income of $314M in their 4th fiscal quarter of the year, which results in an adjusted gross operating margin of 38.4% (Invesco Investor Relations, 2013). Invesco concentrates on generating a consistently positive increase in AUM across all three major business units, while also seeking to minimize risk to investor's capital. Invesco is also known for a series of scandals in the 1994, 1995 and most notably in the 2002 - 2003 timeframe. The Invesco scandal, combined with those of Enron, Tyco and many others, led to the creation and passage of the Sarbanes-Oxley Act of 2002 that requires greater financial disclosure on the part of publically-held American corporations (Zimmermann, 2005). Invesco was later singled out to pay damages to shareholders based on their involvement in several scandals, the most notable involved their Invesco Dynamics fund where fund managers provided information to friends and key stakeholders on market timing considerations, allowing them to earn a 110% return while

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The popularity of online options trading has exploded in recent years. The Internet has fueled a booming business of small investors throwing money at the derivatives market. The upside to an expanding array of financial products is a greater potential for profit to be made by investors skilled in daily trading; the downside is increased risk and a more complex trading environment. For the amateur investor who is ready to learn how to trade stock options the derivatives market can be enticing, but also frightening. This article will outline some of the advantages and disadvantages of the stock options market for the average investor.

d. Financial managers often opt for investments that offers return (ROI) in proportion to the risk taken. Thus, the managers with the risk averse will certainly choose investment X because of it required return that increase in proportion to the risk.

Commodity derivatives markets have been in presence for a considerable length of time, driven by the endeavors of producers, users and speculators(investors) to deal with their business and financial risks.

It is estimated that about 75% of American companies use derivatives. The main risk remains that most companies do not monitor their position frequently (Operational) and only few really understand the instruments (Intellectual). Moreover, as an off-balance-sheet item it reduces the public awareness of such items (accounting).

Herein, the paper offers a practical example of an investment process or activity. Using the above investment procedures, the paper rigorously shows how investors

So as to make a genuine estate investment, you should gauge the risk involved. By managing financial risks, an organization can concentrate on its key activities as well as operations, instead of on forecasting rates of interest, exchange rates, and future commodity costs. In a practical manner, they are not capable of being a perfect market.

Derivatives which are essentially just bets (on virtually anything: price of commodity, exchange rate, inflation, currency exchange, etc.) have become a huge market worth over $700 trillion. The problem with them is that there is no physical value behind them and if things go wrong one have to face loss of all the money that have been invested.

Among the most fundamental risks, associated with exchange-traded derivatives, is variable degree of risk. According to Ernst, Koziol, & Schweizer (2011), the transactions in

stock stock-index, and currency options, including markets in the United States and in many other nations. Researchers have studied the impact of derivatives by comparing underlying market characteristics before and after introduction dates, by studying the behavior of the underlying market around the expiration dates of the derivative contracts,