Registration Number : FIN-18-35-347

Student Name : Rivindhu Theekshana Chandrasekara

Module Title : Investment Portfolio Management

Study Centre : Strategy College - Sri Lanka

By submitting this assignment I confirm that I understand and abide by the

Strategy’s plagiarism and collusion regulation
 Table of Contents
PART A....................................................................................................................................................................1
1.1 Hedge Fund.............................................................................................................................................1
1.2 Sri Lankan Economy and country situation in brief...............................................................................1
1.3 Investment opportunities in Sri Lanka....................................................................................................2
1.3.1 Equity market.....................................................................................................................................2
1.3.2 Land and Real Estate..........................................................................................................................3
1.3.3 Alternative Investment.......................................................................................................................3
1.4 Potential Risks involved.........................................................................................................................3
1.4.1 Currency/Exchange Risk....................................................................................................................4
1.4.2 Political Risks.....................................................................................................................................4
1.4.3 Market Risks......................................................................................................................................5
1.4.3.1 Equity Risk................................................................................................................................5
1.4.3.2 Interest Rate Risk......................................................................................................................5
1.4.3.3 Credit Risk.................................................................................................................................5
1.4.3.4 Liquidity Risks..........................................................................................................................6
1.5 Over View of the Investment..................................................................................................................6
PART B....................................................................................................................................................................7
2.1 DFCC Bank PLC....................................................................................................................................7
2.2 Investment policy statement...................................................................................................................7
2.2.1 Investment Policy Statement for Financial Institutions.....................................................................7
2.2.2 Other Concerns...................................................................................................................................8
2.3 Investment Policy Statement..................................................................................................................8
2.3.1 Objectives...........................................................................................................................................8
2.3.1.1 Return Objective........................................................................................................................8
2.3.1.2 Risk Tolerance...........................................................................................................................9
2.3.2 Constraints..........................................................................................................................................9
2.3.2.1 Time Horizon............................................................................................................................9
2.3.2.2 Liquidity..................................................................................................................................10
2.3.2.3 Legal/ Regulatory....................................................................................................................10
2.3.2.4 Taxes.......................................................................................................................................10
2.3.2.5 Unique Circumstances.............................................................................................................10
PART C..................................................................................................................................................................11
3.1 What is an investment?.........................................................................................................................11
3.2 Overseas investment market.................................................................................................................11
3.2.1 Why investors look overseas............................................................................................................11
3.2.2 Risks of overseas investments..........................................................................................................13
3.3 Non-Financial Factors Investors should have to concern.....................................................................14
3.4 Barriers to invest in Sri Lanka..............................................................................................................15

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 PART A

Sri Lanka in recent years has experienced a great degree of uncertainty in its macro-
economic variables. The exchange rate has hit levels hitherto unseen, external debt levels are
alarming. Foreign investors are fleeing the country amidst uncertainties. Global economic
conditions are having a drag on the economy. Economic growth has slowed down
considerably. Explain in detail how you would advise a hedge fund based overseas, which is
actively seeking to enter the Sri Lankan market by investing USD 50 million. Explain the
challenges and how to could overcome them. The fund has an open mandate to invest in any
type of asset it deems suitable.

1.1 Hedge Fund

A pool of funds which witch will invest in alternate investments by using different strategies
to earn active return for their investors can be defined as the hedge funds. These funds will be
invest in domestic or international markets with the intention of making higher profits. Each
hedge funds are constructed to get the advantage of identified market opportunities where the
investors earn more as their investing amount is high.

The subject 50 million hedge fund base, has constructed with the contribution of 10
individuals and they expect to invest for a period of five to seven years at a return of 15% p.a.
Even though it gives an open mandate to invest in any type of assets these funds has to follow
rules and regulations at the country.

1.2Sri Lankan Economy and country situation in brief

Prior to invest in Sri Lanka it is important to have a brief analysis and an understanding of the
country. In resent past as a result of the global economy as well as the political situation in
Sri Lanka the economy does not shows a better growth compared to the other Asian
countries. After a 30 years civil war though the country has started some development
projects it has not shown a healthy development. Also the country is bounded by huge debt.
More importantly the most affective matter for the foreign investors will be the exchange
rate. According to central bank of Sri Lanka the rupee has been depreciated against the USD
by 15.1 % as per the below chart.

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Further the rating agencies has downgraded Sri Lanka and named as a high risk country due
to the political situation and the debt to be pay by 2022. Above issues will be discourage an
investor in his first impression. However there are investors who like to take risks and invest
in emerging markets to earn substantial profits. Which enable them to make extra profits by
taking extra risks.

1.3Investment opportunities in Sri Lanka

Even though the country situation is not in a favorable manner there are opportunities created
by the bad economic itself for the investors to make extra profit such as equity market, land
and real estate, alternative investments etc. By entering in to these markets and investments
the investors get a chance to earn more since the return of the same will be very high and also
the government regulations and taxes will be reduce to encourage foreign investments.
However keen decisions should be taken to earn profits as well as to secure the investment
amount as well

1.3.1 Equity market

Sri Lankan equity market has dropped down drastically due to the economic conditions and
the political situations, hence the prices of the shares has been dropped from their peak. As
the political situation is sorted up to a certain level the market prices of the shares are picking
up. If the investors can purchase some shares during this time period they can earn more as
well as after a period of time the selling prices will also get higher if there is no unexpected
situations.

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Investors at this stage may get shares at a lower price where prices were higher before the
country facing resent situations. A 50% of the hedge funds can be invest in the equity market
where they can earn profits for the time period via dividends as well as capital appreciation.

1.3.2 Land and Real Estate

Investing in land and real estate in Sri Lanka will be a highly returned investment as well as a
secured one. For the last 10-15 years the land prices were increasing significantly and the
prices will further go up with the development projects such as port city, Highway projects,
Harbors and etc. Finding a potential area is the most key factor since the foreign investors
may not have a knowledge in areas and the prices of the lands.

Real estate is another project that the investors can look where a local person should
intermediate and take decisions on behalf of the hedge funds since the properties should be
bought and sell at a profit. This should be monitored closely to avoid any leakage of funds.
Advice is to invest 30% of their funds in land and real estate with a reputed company for
higher return.

1.3.3 Alternative Investment

Invest in alternative market is another option available for the investors to earn high return.
Business startups or the business that need to pump capital can be identified under this
section. Even though this is a highly risk sector the return on same will be higher. The
balance 20% of the fund base can be invest in the alternative market and pump cash in to the
new business to earn more profits

1.4Potential Risks involved.

There are so many risks involved in investments, especially when investing in a foreign
country risks can be unique and may differ time to time but most of the risks are common and
investors has to pay attention prior to their investments to avoid unnecessary losses.
 Exchange/Currency Risk
 Political Risk
 Market Risk
 Credit Risk

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  Liquidity
Above are some of the risks that can be shown as examples for the investments.

1.4.1 Currency/Exchange Risk

I have taken the subject risks as the first potential uncertainty of the investment is because of
the current country situation. As per the above chart (page 03) the rupee has been depreciated
against Sri Lankan rupee by more than 15% which will lead to a loss for the foreign investors
when they need to take their investments back to their country or when they need to convert
into dollars.

As an example let’s assume an investor invests $ 10,000 dollars expecting a return of 20%
p.a. At the time of the investment exchange rate is LKR 150 per dollar. By the end of the year
if the exchange rate has gone up to LKR 200, with his return on investment, when he is trying
to convert his LKR 1,800,000 (Investment amount and the profit) into USD he will get only
USD 9,000 as a result of the exchange rate fluctuation. Which means the investor has lose
USD 1,000/- from his investment amount even though he has earned a profit of 20% due to
the exchange rate fluctuation.

Especially a country like Sri Lanka will exposed to higher exchange rate risks since mostly
the country consumption is depend on imports and the trade account always runs with a
considerable deficit. Hence it is very important to assess the future exchange rate fluctuation
prior to invest in foreign countries.

1.4.2 Political Risks

With the current country situation and the past experiences whenever a government get
change, they have reviewed and revised the economic policy in Sri Lanka. Currently the
country does not have a national economic policy and based on the government political
party the decisions will get changed. Further the country situation will also change according
to the government regulations and policies. Market conditions may affected with the policy
decisions and it will effect to the foreign investors in various ways.

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1.4.3 Market Risks
Market risk can be defined as the risks that an investor may experience losses due to the
effect of the overall performance of the financial markets. There are two types of common
market issues.
I. Equity Risk
II. Interest Rate Risk

1.4.3.1 Equity Risk

Equity risk is the financial risk involved in holding shares of a particular company. The
market is highly volatile and the share prices might go up and down. The investor is always
exposed to an equity risk after entering into the share market. If the prices of the shares
climbs up on the ladder after investment it will be a positive profit generating investment. On
the other hand just after purchasing shares if the price goes down it will affect to the investor
in two ways. On one side he has invested a higher amount that does not carries such a market
value and from the other hand it will create capital losses due to the market volatility.

1.4.3.2 Interest Rate Risk

The interest rate risk will occur where there is unfavorable changes to the monetary policy.
When investment’s value change due to a change in the absolute level of interest. These type
of risks interest get higher than the previous rate. However the proposed investments are not
heavily affected by these type of risks. But there can be instances where the dividends get
lower as a result of high interest rates. Most of the bank facilities in Sri Lanka structured on
floating rate method hence the companies may need to pay more when they are repaying their
debt as a result of the increased interest rate.

1.4.3.3 Credit Risk

Credit risk is the risk that a borrower defaults on its debt repayments. Assume that an investor
has invests his money on a business startup and for some reason the business get collapse and
the borrower unable to cater his debt. In this case the investor may lose both of his agreed
return as well as the investment. Invest in emerging markets will expose to a high credit risks
where they might not have past records to track their performances.

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1.4.3.4 Liquidity Risks
Is the risk where the investor is unable to sell his investments at a fair a price and take his
money whenever they need. Most of the time investors have to accept a lower price and in
some cases the investors may not be able to sell as they expected at the time of investing.

1.5Over View of the Investment

By considering the above factors it is advisable not to invest with an expectation of high
return in short term. Since the market has been dropped and the businesses are still to pick up,
their will be a period where the market conditions will not positive for the investors.

On the other hand the government has relaxed their tax policies and encouraging foreign
investments. The emerging markets are waiting for some capital pumping sources. A good
return can be negotiated as the market conditions are not favorable at all. If the fund base is
ready to accept high risks they will be rewarded with high return.

Though the returns are high investors should wait till the exchange rate to be settled, if not
even though the return is high he may make a loss if the rupee depreciation percentage is
higher than the return percentage.

Investing in Sri Lankan at this time may be a high-risk decision but if the investments made
on above stated resources investors can make a profit even though the market is volatile.

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 PART B
You have been hired as an external consultant by a company to develop an Investment Policy
Statement. The company is in the financial services sector and has a long term liability base.
It has been stable and within the top 5 in the industry. The industry is increasingly getting
competitive, fragmented and highly regulated. Clearly state assumptions, if any.

2.1DFCC Bank PLC

DFCC Bank PLC, which was one of the pioneer development banks in Sri Lanka started in
1955 under a parliament act. In October 2015 DFCC Bank PLC and its fully owned
subsidiary DFCC Vardhana Bank amalgamated.
DFCC is now, a full-fledged commercial bank who caters to the needs of entrepreneurs,
businesses and individuals by providing a full range of commercial, personal and
development banking solutions. Their vision is to be the leading financial solutions provider
sustainably developing individuals and business. The bank is maintain a high reputation on its
stability and for the resent past years the FITCH rating was (AA-) which gives an indication
about their current business as well as the future.

2.2Investment policy statement

A company investment policy statement can be defined as the general rules and the
guidelines should followed by the decision makers when investing funds. This will be an
internal document to refer at the time of decision making. The policy should indicates
different strategies can be used by a company to meet their objectives. Policies should be
state the investor’s short term and long term needs by considering the past performance of the
capital market as well as considering the current market, political, economic and social
situations. All possible risks should be analyze and meet the company objectives with
minimum risks.

2.2.1 Investment Policy Statement for Financial Institutions .

For a financial company there are additional things to be considered prior to make investment
decisions. Especially the sustainability of the company will be retained with the trust they
built and maintain with the public. If the trust of the financial institution damaged a financial
institute may collapse overnight. Hence to meet the customer requests a sufficient amount
should keep as cash and also to serve unexpected withdrawals a part of the excess funds may

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invest in highly liquidity assets. Banks are closely monitored and governed by central bank of
Sri Lanka and the bank has to follow the instructions and the guidelines issued by CBSL as
well. There are authorized investments where a financial institution can invest and also
regulatory requirements on investments. Since the banks are managing public funds unlike
other organizations the investment decisions should be taken as per the guidelines issued by
central bank of the country. In addition to the IPS of a normal company above things are
more important to a company in financial sector.

2.2.2 Other Concerns

Most of the corporate sector as well as the high net worth individual clients are studying the
banks’ balance sheet prior to invest (open accounts) with banks. Maintaining a healthy
investment portfolio will be an added advantage to a financial institutions.

Also with the “Basel III” requirements banks may have to keep additional capital adequacy
amounts based on their deposits. Hence it is important to invest in highly secured assets
rather than taking high risks on investing.

2.3Investment Policy Statement

Investment Policy Statement for DFCC Bank PLC

Below investment policy statement prepared on the assumption that the excess funds are a
portion of deposits of customers and bank has kept the statutory reserves as per the regulatory
requirements also subject funds are excess funds that may not use for their core business
(lending). Further the funds maturity period is five years (Five years deposits with interest at
maturity).

2.3.1 Objectives

2.3.1.1 Return Objective

The primary purpose will be providing liquidity and to control the overall interest rate and
credit risk exposure of the bank while covering the regulatory requirements as well. Bank
officers’ needs to attempt to earn average positive spread over the cost of funds. The
investment profit may come as a consolidated net profit over the cost of funds and some of

FIN-18-35-347 Page 8
the investments may decide on the liquidity and regulatory requirements. Even though the
liabilities are long term it is required to maintain some amount in highly liquid assets to cater
unexpected and prematurity withdrawals hence the profit of the investment will positive as a
consolidated profit since the highly liquidated investments are paying a lower return.

2.3.1.2 Risk Tolerance

As all investment funds are deposits of clients it is very important to consider the security of
the funds as the bank is responsible for same. However bank officers are authorized to take
some calculated risk on a certain amount as the bank is expecting a return on investments.
50% of the investment funds should be in government securities and the balance 50% may
invest in higher risks areas.

Main objectives of the investments has listed down below

 A sufficient amount of funds should maintain in liquidity assets.
 Return on investment is secondary to liquidity and safety of principal.
 To minimize the risks of losses as a result of an individual investment bank
should maintain diversification in its investments.

30% of the funds can be invest in debentures both in listed and non-listed companies. Even
though the risk is bit high in investing in non-listed companies the return for the same will be
higher than listed companies. Balance 20% should use to earn exchange income. As the
market is highly volatile treasury should grant the authority to buy and sell foreign exchange
at a profit to the bank. As there are ups and downs in the market treasury should not take a
risk by keeping foreign exchange for a longer period. Department should take quick decisions
on buying and selling as and when required.

2.3.2 Constraints

2.3.2.1 Time Horizon

Bank officials should take action to invest on assets where the maturity is one to five years.
As the treasury bonds are highly liquidated and return gets increased along with the period
officials may invest on five year bonds. However the decision making parties should make
sure that the investment maturity does not overlaps the deposit period. They are responsible

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for invest in assets where the return is within the deposit period. As the capital needs of the
corporates are high at the moment investing in debentures can be a profitable

2.3.2.2 Liquidity
As mentioned in the objectives bank officers should maintain a certain amount in highly
liquidate assets to meet unexpected and prematurity withdrawal requirements. By investing
50% of the fund base in the government securities and another 30% in debentures (both listed
and none listed). Both of the investments are considered as high liquidity assets as those can
be convert in to cash quickly. The balance 20% may use to earn exchange income as the
exchange market is highly volatile these days. To earn short term profits treasury may buy
foreign currency with the excess funds and sell at a higher price. This may cover liquidity
requirement as well.

2.3.2.3 Legal/ Regulatory

Bank officers should follow the guidelines issued by the central bank of Sri Lanka and adhere
to the regulations. Preparation and the documentation should be rechecked and scrutinize by
the legal department. All investments should be quality under central bank of Sri Lanka
regulations governing the investment activities of banks.

2.3.2.4 Taxes
As a taxable institution bank should appraise taxable and tax exempted investments on an
after-tax basis, to be compliance with the above, investment details should be pass to the tax
section under accounts department on monthly basis. Head of accounts department is
authorized to inquire details as and when needed for official purpose.

2.3.2.5 Unique Circumstances

The board of directors appoint head of treasury as the chairperson of the investment
committee and it’s the responsibility of the “chairman – investment” to take decisions based
on the investment policy and report once in three months to the board of directors on the
progress of the same.

Special attention needs to be given to the Basal III requirements as the bank may have to
keep additional capital adequacy for the risky investments.

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 PART C
Using examples explain non-financial factors that an investor needs to look at prior to making
investment decisions in an overseas market. You may include barriers that may exist to enter
and/or exit overseas markets, socio economic factors, competition etc for this purpose.

3.1What is an investment?
Once Warren Edward Buffett, who is a renowned American business magnate, investor,
speaker and philanthropist said, that investment is “the process of laying out money now to
receive more money in the future”. Simply, investment is the current commitment of
resources for a period of time in the expectation of receiving future resources.

In economic perspective an investment is the purchase of goods that are not consumed today
but are used in the future to create wealth. In financial perspective, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or will
later be sold at a higher price for a profit (Investopedia Corporation, 2018).

3.2Overseas investment market

In financial terms overseas investment is another term for foreign investment. The
tremendous growth of overseas investment over the past several decades has been both a
primary cause and effect of globalization.
When investing in overseas market, investors need to look at Financial and Non-financial
factors prior to making investment decision.

3.2.1 Why investors look overseas

 Added diversification - Spreading investments over many states and markets can
lead the slowdown in one state will have a smaller impact on the overall portfolio.

 Higher growth - International investing lets you take advantage of potential growth
in foreign countries, especially in emerging markets. But, remember that while some
countries may have higher growth and potential returns, they can have a higher level
of risk.

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Figure 1 Countries by Real GDP Growth Rate

 More options - investors can invest in corporations, trades and assets that are not
accessible or are hard to invest in domestically.

Before an investor invest in overseas it's vital to ponder about how the investment correspond
with the investment goals, overall portfolio, risk tolerance and investment timeframe.

Then, the investor should consider which country or region he would like exposure to.
Researching the country or region, its trends and political and economic environment is
critical before investing money.

Finally, investor should ponder about whether he is going for a direct investment or an
indirect investment which best suit for his investment goals.
Direct investing is where you purchase the asset yourself and hold it in your name, for
example buying international shares through your broker or buying an overseas investment
property.

Indirect investing means where your money is given to another party who buys and sells
investments on your behalf.

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3.2.2 Risks of overseas investments
Investing internationally carries all the general risks of the underlying investments, as well as
some unique risks, including:

 Currency risk - Foreign investments are usually held in the currency of the country
of origin. Income and capital gains or losses must be converted into Australian dollars
(AUD) which will expose you to the risk of exchange rate movements.

 Political, economic and regulatory risk - International investments are subject to

country-specific risks such as political, economic and regulatory changes, which can
be hard to keep track of from Australia. You will also need to understand the laws and
regulations relating to foreign investments in the country you invest in.

 Selling time - If you hold investments in other countries or in managed funds that
invest internationally, it may take significantly longer to sell these assets. Some
countries may also restrict the amount or type of securities that foreign investors may
purchase.
 Additional costs - International investing can be more expensive than investing in
Australia. In some countries there may be unexpected taxes, such as withholding taxes
on dividends or rental income and transaction costs such as broker's commissions.

 Lack of information - It can be difficult to find up-to-date information on foreign

companies and assets. Some foreign companies may not provide investors with the
same type of information as Australian companies do or they may have different legal
and accounting standards.

 Foreign legal remedies - If there are problems with your overseas investments, you
may have to rely on the legal remedies that are available in the country where you
invest.

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3.3Non-Financial Factors Investors should have to concern
Higher return with low risk is the fundamental factor which concern by a rational investor.
That means an investor might need to take into account the environmental impact of a
potential investment. Therefore, both of financial and non-financial factors have to concern.

This section is to describe what are the factors that particular investor should have to concern
under the non-financial factor analysis. Apart from that investor may need to balance
financial and non-financial factors to obtain a higher return.

Key non-financial factors for investments

 Better assessment of current and future legislations. – That means country to
country available legal framework is different due to their social, economic and
cultural background. Apart from that long-term perceptions of the government and
sustainable development targets encourages new rules and regulations. Sometimes
these policy changes will match with investors perspectives or not.

 Matching industry standards and good practices- Normally some countries have
their own techniques, traditions and methods regarding on particular industries and
sometimes they followed some standards to assure their goodwill. Sometimes these
situations will be costly for investors.

 Business reputation – Improving relationship between customers and the good

reputation with the local community as well as global community is must needed
factor for successful implementation of a business

 Developing the capabilities of the businesses, such as building skills and experiences
in new areas or strengthening management systems.

 Future Threats – Sometimes your investment will not be accepted by the

community. This means investor’s perspectives and expectations will mismatch with
cultural, religious or traditional factors of the community. Except to that some
countries are often suffering from natural disasters like floods, earthquakes or etc.
Therefore, systematic study on protentional threats is must needed.

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3.4Barriers to invest in Sri Lanka
 The law of the land:
According to the prevailing legal conditions in Sri Lanka, foreign investors are not eligible to
own land or any kind of landed properties. Due to that reason long term lease agreements like
30 years, 66 years and 99 years are only available option for foreign investors in Sri Lanka.
Mattala harbor and Port city development are the some of famous examples which elaborate
that situation. Even this option is existing some of parties like social organizations, political
parties and religious organizations plays considerable effort to eliminate these kinds of
foreign funded projects. Because of that it becomes one of the major barriers to invest in Sri
Lanka.

Except to that land related laws like Agrarian development act, Low Land Reclamation act,
Central environmental Act and Coastal Conservation Act provides some of restrictions
regarding on different types of investments in their lawful areas. As a result of that investors
become discourage due to huge legal interference on investment project. In addition to that
documents like Initial Environment Examination (IEE) and Environmental Impact
Assessment (EIA) are must needed to every type of development project in Sri Lanka.
Concerns about dispute resolution in Sri Lankan courts, as Lankan courts often do not
recognize litigation filed in other countries. This is an issue particularly when it comes to
ownership rights and disputes.

 Labor is no party:
For many international companies and bodies in Sri Lanka, finding highly qualified staff is
difficult. Normally Sri Lankan Labor force is sustaining with adequate education
qualification and knowledge comparing with other Asian countries but, Due to Sri Lanka's
brain drain, many highly-skilled workers leave after training or education. Other issue is price
of the labor, comparing with other South Asian countries Sri Lankan labor expect higher
salaries including both Skilled and Unskilled labors. Concerning about their perspective due
to inflation and other conditions it is required but rational foreign investors always looking
for higher gains with low costs. Productivity and punctuality concerns are also rampant.
There’s also a lack of formalized brokers for FDIs, as opposed to people who "know
somebody". Foreigners will also realize that unless they pass a certain investment minimum
and have BOI approval, getting working visas for their foreign staff is ridiculously hard.

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According to Economist Deshal de Mel (who delves deep into the topic here here), this also
makes it difficult to attract foreigners who want to export using Sri Lanka as a base, because
our labor is comparatively expensive and unproductive, and they’d much rather invest
somewhere like Bangladesh for cheap labor or Thailand/Malaysia for technology and
productivity.

 Huge tax burden:

Sri Lankan tax structure normally associate with both of direct and non-direct taxes, As per
the Inland Revenue Department of the Sri Lanka Individual Income tax, Corporate Income
Tax, Withholding Tax, Economic Service Charge, Value Added Tax, National Building Tax,
Stamp Duty, Share Transaction Levy, Betting and Gambling Levy, Construction Industries
Guarantee Fund Levy and Rates Charged by the local authorities are the some of main taxes
available in today context, Due to these taxes personal expendable income as well as
corporate incomes become low, In other way these calculations are difficult to understand
general public as well. According to globally accepted tax principles tax system should be
associate with five basic conditions like fairness, adequacy, simplicity, transparency and
administrative easily. But the reality is available tax structure is not comprised with those
requirements. Even there are some tax incentives and tax relieve in investments comes under
the industrial zones, it is not a satisfactory factor for investors in both of local and foreign
context.

 Unsustainable governments and corruptions:

These are the most fatal as well as vital issues which face by the Sri Lanka suffering since
past two decades. Since last three months Sri Lanka is suffering from changes of
governments. As we experienced that government to government is different from their
interests and policies. Due to that reason investors are unable to make correct choices and it
becomes discourage factor huge collapses happen in the Colombo stock exchange is one of
the most recent examples which proves this situation.

As a result of that corruption which done by politicians and other government officers have
been increased. As per the corruption perfection index 2016, Sri Lanka holds 95th position
with scoring 36 marks. These types of information bring harmful effects to the reputation of
the Sri Lanka and potential investors will discourage. Even government or president appoints
different comities in different names investigations and court proceedings are not accurate.

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 Figure 2 Corruption Perceptions Index

Source: Corruption Perceptions Index Webpage

 Cultural and Traditional Factors-

Including Sri Lanka majority of South Asian countries bounded by huge cultural bonds and
most of communities try to protect this culture with remaining constantly their customs.
Especially customs come with religious bonds are very strong and unbreakable. Due to this
factor sometimes, these customs become laws and part of a constitution. As an example,
according to the section 19 of 1978 constitution president of the Sri Lanka should be a
Buddhist. But in some cases, these types of customs and traditions will bring restrictions for
some types of investments. Specially in tourism and hospitality sector Sri Lanka is not
allowed to casinos or prostitution. As an example, in year 2008 James Packer came to start
casino in Sri Lanka, though he was a huge investor Sri Lankan culture was mismatch with his
ideas. Finally, his effort was not succeeded.

According to above discussions it is proved that an investor needs to look at not only
financial factor but also needs to look at non-financial factors prior to making investment
decisions in an overseas market.

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References
https://www.investopedia.com/terms/i/ips.asp

https://www.getsmarteraboutmoney.ca/invest/investing-basics/understanding-risk/types-of-investment-risk

http://www.lankabusinessonline.com/sri-lanka-rupee-depreciated-against-us-dollar-by-15-pct-this-year

https://en.m.wikipedia.org/wiki/Foreign_exchange_risk

https://economynext.com/Investors_seen_facing_big_barriers_in_Sri_Lanka_renewable_energy-3-8656-.html

https://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate

https://www.transparency.org/news/feature/corruption_perceptions_index_2017?
gclid=Cj0KCQiA37HhBRC8ARIsAPWoO0ylYPYftqqaC5t8SEMOAYvvDVU_axPPblzDyhJ7PFB7AmN6Vx
2TRqQaAoHNEALw_wcB

https://en.wikipedia.org/wiki/Corruption_Perceptions_Index

Mr. Charith Rodrigo senior manager assets and liability management DFCC bank plc

FIN-18-35-347 Page 18