Investment Portfolio of Personal Finances - Case Study Example

SPRING 2016

PROJECT REPORT

Investment Portfolio of Personal Finances

SUBMITION BY

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SUPERVISION BY

DR. ARUNA DHADE

INDEX

• Introduction
• BANK DEPOSITS
  • Doha Bank
  • Qatar National Bank.
  • Barwa Bank
• Exchange Foreign Currencies
  • Japanese Yen
  • Euro
  • British Pound
• Stock Market
  • Bres stock ( Barwa Real Estate Company)
  • Eres Stock ( Ezdan Holding Group)

• Profit Summary
• Conclusion
• References
  • Stock Market
  • Banking
  • Exchange Foreign Currencies

Introduction

Investing sometimes can be very tricky especially when you are not sure of where to invest your money. Though there are so many opportunities to invest in ranging from stock market to bank deposits to securities and bonds, (www.marketstoday.net)

there is always that apprehension that the invested money might just get lost or earn little profit. This is where consultants, financial journals and the internet come in handy to provide prospective investors with the right information.

As a group of five and with 1000000 QR to invest, we had to seek for the right information from the above named sources so as to identify viable opportunities where we could invest our money. After a thorough fact finding mission we narrowed down three main areas.

• Bank deposits
• Forex markets
• Stock markets

We decided to invest 50% of the total amount in the stock market, 25% in the bank deposit and the remaining 25% in foreign exchange market.

The 1000000 QR was partitioned as shown in the table below.

OPPORTUNITY

PERCENTAGE

AMOUNT IN QR

Stock Market

50%

500,000

Bank Deposits

25%

250,000

Forex Markets

25%

250,000

Though stock market was also a better option, volatility in that market capped with dwindling inflation has brought back bank fixed deposits to be like dangling carrots for investors who are looking for viable opportunities. Because of this, bank deposit schemes according to our research offered guaranteed returns to the investors at the time of maturity and so became our first priority. Banks fixed deposit scheme is considered one of the most safe investment opportunities relative to other opportunities for investment. To avoid tax deductibles we decided to split the amount among three banks. We also considered the interest rates calculation before settling on those banks. Interest rates on fixed deposits are calculated quarterly, half yearly, yearly and at the end of maturity. So these banks listed below were found to be doing quarterly calculation therefore paying the highest interest rate.

• Doha bank.
• Qatar national bank.
• Barwa bank.

Of the 250,000 QR, 50% was deposited in Doha bank, 25% was deposited in Qatar national bank and the rest 25% in Barwa bank. This has been shown in a tabular form as shown below.

BANK

PERCENTAGE

AMOUNT IN QR

Doha bank

50%

125,000

Qatar national bank

25%

62,500

Barwa bank

25%

62500

Because of the short period of three months, our investment was subjected to quarterly calculation. Doha bank was calculating the interest at a rate of 4% per annum (www.dohabank.com )

; Qatar national bank was offering 3% (www.qnb.com )

while Barwa bank was offering a 3.6% interest rate (www.barwabank.com ).

So using the compound interest formula, A = P

Where A = accumulated amount for a given period.

P = initial principle invested

R = the rate of compounding per annum

t = the number of years

n = number of times principal is compounded in a year.

Therefore,

2.1 CASE 1. Doha Bank

P = 125,000, r = 4/100, n = 1, t = 4.

Therefore,

A = 125,000 = 130075.50 QR

PROFIT = 130075.50– 125000 = 5075.50

2.2 CASE 2. Qatar National Bank

P = 62,500, r =3/100, n = 1, t = 4.

A= 62500 = 64396.19

PROFIT = 64396.19 – 62500 = 1896.19

2.3 CASE 3. Barwa Bank

P = 62,500, r =3.6/100, n = 1, t = 4.

A= 62500 = 64780.56

PROFIT = 64780.56 – 62500 = 2280.56

For the period of three months we were able to earn a profit of 9252.25 QR from the bank deposits from the three banks.

BANK

PROFIT IN QR

Doha Bank

5075.50

Qatar National Bank

1896.19

Barwa Bank

2280.56

TOTAL

9252.25

3) Foreign exchange market Currencies.

We also ventured in foreign exchange where we traded in buying and selling of foreign exchange (www.usforex.com ).

The currencies involved were:

• Euro
• Japanese yen
• British pound

CURRENCY

PERCENTAGE OF QR

AMOUNT IN QR

Japanese Yen

20%

50,000

Euro

40%

100,000

British Pound

40%

100,000

The 250000 QR was divided into three where 50,000 QR was used to trade in Japanese Yen, 100,000 QR was traded in American dollar while the remaining 100,000 QR was used to trade in British pound.

• • Japanese Yen (20%)

We bought and sold Japanese yen using the Qatar riyal for six weeks between March 1st and 31st may 2016. During the first week we used 50,000 QR to buy Japanese yen which cost 0.033411 QR per 1 Japanese Yen. With that we were able to buy 149651.1244 YEN which we were able to sell in the second week at a price of 29.85 YEN for 1 QR. This gave us a total of 50134.4430 QR which translated to a profit of 134.4430 QR in the second week. The exchange of the currency took place for the period of six weeks without us making any loss. As at the end of the sixth week we had a total of 54318.1964 QR which translates to a profit of 4318.1964 since we started with 50,000 QR. This is a profit of 8.64% within the period of three months. The table below shows how the currencies changed in value against each other.

DATE

TRANSACTION

PRINCIPAL

PRICE QR

EARN

1st week

BUY

50,000

QR

0.033411

1496513.1244

YEN

2nd week

SELL

1496513.1244

YEN

29.85

50134.4430

QR

3rd week

BUY

50134.4430

QR

0.0324

1547359.3527

YEN

4th week

SELL

1547359.3527

YEN

29.81

51907.3919

QR

5th week

BUY

51907.3919

QR

0.0321

1617052.7074

YEN

6th week

SELL

1617052.7074

YEN

29.77

54318.1964

QR

• • EURO (40%)

Due to the current imbalance of trade being experienced in the country we felt it was not wise to do much of exchange between the Euro and the riyal. Only three times did we exchange the Qatari riyal with the Euro. We decided to take 40% of the 250,000 QR to exchange with the Euros which came to a total of 100,000 QR. Our first transaction was in March 2, 2016 when we bought 24466.6275 Euros at an exchange rate of 4.0872 QR per Euro. We later sold the Euros on April 3, 2016 at a selling price of 4.2783 QR per Euro to earn a total of 104675.57 QR. On April 21, 2016 we were able to buy 27319.74 Euros at a buying price of 3.8315 QR per Euro. On May 4, we sold the Euros at a retailing price of 4.1073 QR per Euro which earned us a total of 112210.37 QR. Again on May 19, 2016 we bought 29273.29 Euros using the 112372.96 QR at an exchange rate of 3.8332 QR per Euro. Lastly, on May 27, 2016, we exchanged the 29315.70 Euros for Qatar Riyal of which we managed to get a total of 121912.27 QR. This translates to a profit of 21912.27 QR within a period of just three months. This translates to a percentage profit of 21.91%. The table below shows how the Euro exchanged against the Qatar Riyal during the three months.

DATE

TRANSACTION

PRINCIPAL

PRICE QR

EARN

2-Mar-16

BUY

100,000

QR

4.0872

24466.6275

Euros

3-Apr-16

SELL

24466.6275

Euros

4.2783

104675.57

QR

21-Apr-16

BUY

104675.57

QR

3.8315

27319.74

Euro

4 –May -16

SELL

27319.74

Euros

4.1073

112372.96 QR

19 -May-16

BUY

112372.96

QR

3.8332

29315.70 Euros

27-May-16

SELL

29315.70

Euros

4.1586

121912.27

QR

• • British Pound (40%)

The last 100,000 allocated for foreign exchange was used to buy and sell the British pound. Since the value of the British pound was not steady, we could not trade in it for long as this could have resulted in unexpected losses. So to minimize the risk, foreign exchange was only done twice.

DATE

TRANSACTION

PRINCIPAL

PRICE QR

EARN

1-Mar-16

BUY

100,000

QR

5.4869

18225.23

pounds

2-Apr-16

SELL

18225.23

pounds

5.5386

100942.26

QR

28-Apr-16

BUY

100942.26

QR

5.5131

18309.53

pounds

30-May -16

SELL

18309.53

pounds

5.5271

101198.60

QR

On March 1, 2016 we bought 18225.23 British Pounds. Each was exchanging for 5.4869 QR. Come April 2, 2016, we sold the British pounds at an exchange rate of 5.5386 QR per pound. This translated to a total of 100942.26 QR. On April 28, 2016 we bought 18309.53 pounds at an exchange rate of 5.5131 per pound. About four weeks later on May 30, 2016 we sold 18309.53 pound to get a total of 101198.60 QR. This is a profit of 1198.60 QR which is 11.98% profit.

Total profit from foreign exchange is 16147.64 + 4318.1964 + 1198.6 = 21664.4364 QR

• Stock Market (25%)

Stock exchange was our third investment opportunity. We were able to narrow down to two stock markets in Qatar. These were Bres Stock market and Eres Stock market. The 500,000 QR that was allocated to be invested in the stock market was divided in a ratio of 1:1 for the two stock markets. This means that 250,000 QR was invested in each of the markets.

• • Bres Stock Market. (50%)

We bought 6000 shares worth 250,000 QR which were being sold at 41.66 QR per share on March 15, 2016. Come March 30, 2016, the share prices shot to 49.23 QR per share and we decided to sell them. This gave us a total of 295380QR which earned us a profit of 45380 QR. On April 5, 2016 we decided to plough back the amount by buying other shares which were retailing at 44.3 QR per share. This gave us a total of 6667.72 shares. After one month, the prices rose from 44.3 QR to 52.11 QR per share. So on May 5, 2016 we sold all our shares and earned a handsome amount of 347454.88 QR. This is a profit margin of 97454.88 QR

DATE

TRANSACTION

PRINCIPAL

PRICE QR

EARN

15-Mar-16

BUY

250,000

41.66

6000

30-Mar-16

SELL

6000

49.23

295380

5-Apr-16

BUY

295380

44.3

6667.72

5-May-16

SELL

6667.72

52.11

347454.88

• • Eres Stocks (50%)

The remaining 250,000 QR was also invested in stock, this time in Eres stock. Since the shares were not doing well in march, we waited until the beginning of April when the prices had prospects of rising. On April 3, 2016, we invested in 8000 stocks each going for 31.25 QR. After five weeks the prices shot to 38.73 QR per share. We were persuaded that this was the prime price and so on May 10, 2016 we sold all our stock. We were able to earn 309840 QR. This translated to a profit of 59840 QR. This was a profit of 23.94%. The transactions are as shown in the table below

DATE

TRANSACTION

PRINCIPAL

PRICE QR

EARN

03-Apr-16

BUY

250000

31.25

8000

10-May-16

SELL

8000

38.73

309840

Profit Summary

Portfolio distribution.

INVESTMENT

PRINCIPAL

PROFIT

DOHA BANK

125000

5075.5

QATAR NAT. BANK

62500

1896.19

BARWA BANK

62500

2280.56

EURO

100,000

21912.27

JAPANESE YEN

50,000

4318.1964

BRITISH POUND

100,000

1198.6

BRES STOCK

250000

97454.88

ERES STOCK

250000

59840

SUM

1,000,000

193976.2

The above table gives a summary of the return results from all the three sectors. According to the whole investment plan, the project was supposed to at least generate a profit margin of more than 15% within the period of three months. From the investment of 1,000,000 we were able to get a return of 193976.2. This translates to 19.398% profit. This is a positive deviation of +4.398%. Based on our projection, we conclude that the performance was satisfactory as the goal of the investment was achieved within the set timeline.

Conclusion

In this project, we found that among many business or investment opportunities, it is the banking sector, stock market and foreign exchange that were doing well and would guarantee an investor good returns. From the returns that we got, it is quite evident that trading in the stock market though risky sometimes can give high returns more than any other business opportunity. We decided to allocate a larger fraction of the money because the returns were almost obvious during that time. Prices in the stock market were soaring day by day. So compared to other investments, it gave us the highest profit. We expected a profit margin of about 18% but fortunately it was about 25%. This was closely followed by trading in the foreign exchange then fixed deposit banking which earned us a profit gain of 3.7% which was just about our expectation .we allocated a relatively less amount to bank deposits since the period was short. It is also imperative to note that all the investment opportunities we ventured into resulted into profit including foreign exchange investment where got a profit of 10.97%. This is as a result of careful and thorough consultation from the relevant sectors. We invested one million at the beginning of three month period and at the end of it we have been able to accumulate a profit of 249060.7 QR which translates to 24.9% profit. This is not a bad outcome as we projected a profit margin of about 20%.