Question

PROVIDE NOTES ON SECURITY AND INVESTMENT MANAGEMENT IN FINANCIAL INSTITUTIONS

• Overview of financial institutions investment practices
• Fundamental principles of sound security investments
• Formulating investment portfolio policies and strategies
• Banks investment portfolio content and management
• Factors affecting portfolio creation and management in banks
• The role and functions of Investment portfolio manager
• Portfolio management in insurance and pension funds
• Security and investment portfolio management empirical evidences

Answer 1

Overview of Financial Institutions investment practices : The main purpose of financial Institution is to earn money through lending of money and investing the money in proper modes to increase the return on money.They Invest in different modes to earn return on Investmeny.

Fundamental principles of sound security Investments:

i) Safety of Principal : The banker has to ensure that the principal amount invested by him remain safe and there is no decrease in Investment amount.

ii) Marketability : They can be sold in the market without loss of time and money. Marketability of securities ensure liquidity of investments in open market.

iii) Diversification: Investment must be made in diversified portfolio so that risk is covered with each other.

iv) Duration : It should be based on future earning prospects.

Factors affecting portfolio creation and management in banks:

i) Risk Measurement : Bank create portfolio depending upon its level of risk aversion and capability.

ii)Measurement of return on Investment.

iii)Availability of Fund

iv) Reliability of Fund Manager

The role and functions of Investment portfolio manager:

i) Deciding the Investment plan for the Client.

ii)Making aware to clients of various Investment tools,

iii)Portfolio manager is required to be a good decision maker.

iv)Keeps himself updated with latest changes in the financial market.

Portfolio management in insurance and pension funds :

Insurance and pension fund plays a major role in financial market. Insurance and pension companies are required to make huge investment of money received in the form of premium and pension.They generally Invest in Government securities and other no risk securities because they cant bear so much of risk.They hold diversified portfolio to maximize return on Investment.

Security and investment portfolio management empirical evidences :

The quantification of risk is an important  part of modern portfolio theory.A quantitative risk measure must be positively correlated with the rate of return so that greater return can be expected with greater amount of risk.Empirical evidences both support and rejects risk factors.It has four parts first quantitative risk measure second Risk theory third relationship between risk and return and in fourth conclusions are presented.