High return on investment is the prime focus of investors. Investors analyse risk factor prior to making investment in any financial institute like bank or any business organization. High risk factor reduces the potential of expected rate of return. Market risk, credit risk, and other risk factors also influence rate of return offered by the Banks of Oman in form of interest or profit on the deposit or investment of a specified amount. In the present work, risk and return of Bank Muscat is analysed in detail. Present work also covers calculations of average return and standard deviation of investment in Bank Muscat.      

Risk and Return of Bank Muscat Investment Banking

        The risk in investment banking can be defined as the likelihood or probability of losses’ occurrence that is related to the expected financial return on any kind of investment. In other words, the risk is known as a measure of uncertainty level of achieving the financial return on as per investors’ expectations. Some of the major types of risk include default or credit risk, country risk, interest rate risk, market risk, or political risk. On the other hand, the return is defined as a measure of loss or gain generated through an investment that is related to the invested amount of money. The return usually is expressed a percentage and useful for making personal financial decisions (Bhattacharya, 2011).

        There exists a trade-off between risk and return which means that an increase in risk will inversely impact the return and higher risk is related to the higher probability of greater returns and vice versa. This trade-off is faced by investors while considering decisions regarding investment. For example, an investor of Bank Muscat faces a trade-off between risk and return while making an investment decision. If the investor deposits whole amount in saving bank account of Bank Muscat, a low return will be earned i.e. the rate of interest that bank pay, but the whole investment amount will be insured up to some specific amount that is decided by Bank Muscat (Bouheni, et al., 2016).

BM’s Exposure in Minimizing the Standard Deviation

        Sector expertise is one of the exposures of Bank Muscat in minimizing the standard deviation. The bank has vast advisory for investment banking and the advisory work of investment banking covers strategic advisory, rating advisory, infrastructure advisory, and M&A (Merger and Acquisition) advisory, for instance, search for disposals and joint venture partner, and family reorganization etc. In Oman as well as in Muscat, a largest advisory platform is contained by investment banking. The sector expertise guides the investors regarding their investment decisions that where should they invest their amount and where should they avoid to invest their amount. The appropriate amount to make an investment is also guided by the that how much amount would be appropriate and beneficial for an investor to invest in some particular project. The sector expertise guide investors regarding major things that must be considered before making their investment decisions such as drawing the personal financial roadmap at first stage by taking an honest look at the whole financial condition, especially when the investor is making a financial plan for the first time. The sector expertise informs the investor about the risk associated with the financial plan. This is how the standard error is minimized because the investor become cautious and he or she invest carefully.

Average Return and Standard Deviation of Investment

        The average return and standard deviation of investment of Bank Muscat on Equity and Debts are calculated separately. The above calculation shows that the average value of equity is 1.8 while the average value of debts is 2.65; the average value of debts is much higher than the average value of equity. On the other hand, the standard deviation of equity is 2.2 while the standard deviation of debts is 1.3; the values show that standard deviation for equity is much higher than the standard deviation of debts which means that risks associated with equity are much higher than the risks associated with debts.

         It is recommended to Bank Muscat to create a portfolio to mitigate or minimize the risk associated with equity. The low volatility equity portfolio should be created targeting the least volatile stocks. The forecasting option can be adapted to record the trends of the stock market, if stock prices keep on decreasing then the investment should be taken back. In order to mitigate the equity risk, it is very important for Bank Muscat to remain active with the stock market updates. Dynamically managing the equity exposure has the potential to limit the risk associated with a downside in the times when equity markets are declining. Option strategies providing protection against the equity volatility spikes are usable as the basis of opportunistic when the insurance cost looks cheaper than earlier.

        Furthermore, the allocation of resources to real assets like commodities and real estate could the hedge in the equity market if inflationary pressures develop due to the massive balance sheets’ expansion by the central bank. Few of the alternative investments can provide a source of return that is correlated weekly and that complements equities. If the Bank Muscat follows these strategies, then the high values of the standard deviation of equities can be reduced up to an acceptable level. On the other hand, in order to minimize the standard deviation of debt, the Bank Muscat can adopt various useful strategies. Typically, the debt portfolio has the highest impact on the overall profile of risk and community banks’ earnings. A platform can be provided by the strong credit culture for the Bank Muscat so that the bank could successfully compete in the market and maintain the competitive edge in the banking industry of Oman. Although the risk associated with debt is inevitable, Bank Muscat can mitigate this risk by taking stronger steps in a way that lending program could be strengthened.

        In a nutshell, there exists a trade-off between risk and return which means that an increase in risk will inversely impact the return and higher risk is related to the higher probability of greater returns and vice versa. The sector expertise guides the investors regarding their investment decisions that where should they invest their amount and where should they avoid to invest their amount. The sector expertise informs the investor about the risk associated with the financial plan. The average value of debts is much higher than the average value of equity. The values show that the standard deviation for equity is much higher than the standard deviation of debts which means that risks associated with equity are much higher than the risks associated with debts. The possible recommendations are provided to Bank Muscat to mitigate the risk associated with equity and debt.

Conclusion on Bank Muscat Investment Banking

        The whole discussion conclude that Bank Muscat has high risk  associated with the debt as standard deviation values for debt is greater than equity. Considering this we can conclude that bank Muscat need to bring changes in the debt management policies. Moreover, securities market can also get influence as a result of changes in the inflation rate of country. Debt create high risk factor in all offered investment portfolio that bank can tackle through limiting debt at the optical level. Summarizing all we can say that increase in risk will decrease rate of return on investment therefore there is need to control risk factor in advance to build competitive edge in the competitive market.