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How is personal data collected? There are several ways that an unauthorised person can try and collect your data. These include: •phishing •smishing •vishing •pharming. Phishing Phishing is when a person sends a legitimate looking email to a user. The email contains a link to a website that also looks legitimate. The user is encouraged to click the link and to input personal data into a form on the website. The email could also simply ask the user to reply to the email with their personal data. The user is tricked into giving their personal data to a source that they believe is legitimate. However, both the email and the linked website are from a fake unauthorised source. The personal data that is input is then collected by an unauthorised person. This person can then use this data for criminal acts, for example, to commit fraud or steal the person's identity. Intimidation has become a common feature of phishing emails, threatening the user that they must click the link and rectify a situation immediately, or there will be a further issue. The aim of a phishing attack is to steal the user's personal data. Figure 5.1: Phishing. A real-life example of phishing PayPal have been the subject of several different phishing emails. Users receive an email that looks as though it has been sent from PayPal, as it has the PayPal branding. The email normally warns of an issue such as unexpected activity on their account, or that some kind of verification of their account is required. The user is then asked to click a link to log into their account and resolve the issue. The link takes them to a webpage that looks like the PayPal login page. If the user inputs their login details into this page, they will not be taken to their account. It is often at this stage that the user may realise that the email and webpage are fake. However, they have already given the unauthorised person their PayPal login details. Figure 5.2: An example of a phishing email claiming to be from PayPal. How to recognise phishing There are several guidelines to be aware of regarding emails to avoid being subjected to phishing. These include: •Don't even open an email that is not from a sender that you recognise or a trusted source. •Legitimate companies will never ask you for your personal data using email. Be immediately suspicious of any email that requests your personal data. •Legitimate companies will normally address you by your name. Be suspicious of any email that addresses you as ‘Dear Member' or ‘Dear Customer'. •Legitimate companies will send an email that uses their domain name. If you hover your mouse over the sender's name, it will show the email address that the email is sent from. If this does not look legitimate, for example, does not contain the correct domain name, then it is probably fake. For example, if the sender's email is user@paypal1.com rather than user@paypal.com, this is from an incorrect domain name. •Legitimate companies are protective of their professional reputation and thoroughly check any communications. They will make sure that all information given is grammatically and correctly spelt. Be suspicious of any email that contains bad grammar or spelling mistakes. •A link in an email from a legitimate company will also normally contain the domain name of the company. You can sometimes hover over the link, or right click and inspect the link, to see the address of the URL that is attached. If the URL does not contain the domain name, or also contains typical errors such as spelling mistakes, then be suspicious of this. PRACTICAL ACTIVITY 5.02 Ask a friend or a member of your family if they have ever received an email that they believed was a phishing email. Ask them how they identified it was phishing. Ask them if they know all of the given guidelines for identifying phishing emails. Smishing Smishing (or SMS phishing) is a variant of phishing that uses SMS text messages to lure the user into providing their personal details. The user is sent an SMS text message that either contains a link to a website, in the same way that phishing does, or it will ask the user to call a telephone number to resolve an urgent issue. The same advice can be followed for smishing as given for phishing. The user must question at all times any links that are sent from an unknown or suspicious user. It is advisable that if a user believes the message may be legitimate, to type in the domain name for the legitimate company website into their web browser, rather than following the link in the message. Users should block any numbers that they believe are suspicious to prevent any further risk of smishing from that number. Figure 5.3: Smishing. Vishing Vishing (or voice phishing) has the same aim as phishing, to obtain a user's personal details. The user receives a telephone call that could either be an automated system or could be a real person. An automated voice could speak to the user and advise them that an issue has occurred, such as there has been suspicious activity regarding their bank account. The user may then be asked to call another number, or just to simply press a digit and be directed to another automated system. This system will ask them to provide their bank account details to resolve the issue. The bank account details have then been obtained by the unauthorised user and can be used to commit a crime against the user. The automated system could be replaced by a real person who will try to do the same thing. They will try to convince the user that there has been an issue with an account they have and to provide the log-in details or PIN for the account to verify who they are so the issue can be resolved. The precaution to take for vishing is that no company will ever call you and ask you to provide any log-in details or PIN details over the telephone. They may ask you to provide other personal information, and if you are in doubt that the person on the other end of the phone is legitimate, it is always advisable to put the phone down and call the company back on a legitimate number that you may already know or can obtain. Figure 5.4: Vishing. Pharming Pharming is when an unauthorised user installs malicious code on a person's hard drive or server. The malicious code is designed to redirect a user to a fake website when they type in the address of a legitimate one. The fake website is designed to look like the legitimate one, to trick the user and make sure they are not aware that their request has been redirected. The user will then enter their personal details into the fake website, believing it is the legitimate one, and the unauthorised person will now have their personal data. A common technique used in pharming is called domain name server (DNS) cache poisoning. This technique exploits vulnerabilities in the DNS and diverts the internet traffic intended for a legitimate server toward a fake one instead. The unauthorised user needs to find a way to install the malicious code on the computer. They often hide the malicious code in an email attachment or link. When the user opens the email attachment or clicks the link, the malicious code is downloaded also. Figure 5.5: Pharming. The aim of a pharming attack is also to steal a user's personal data. A real-life example of pharming In 2007 50 different companies all over the world were subject to a pharming attack, these included PayPal, eBay, Barclays bank and American Express. Over a three-day period, hackers managed to infect over 1000 PCs a day with a malicious pharming code. When users who had been infected visited the websites of the different companies, they were redirected to a legitimate-looking version of the site that was designed to steal their personal data. The original email, containing the malicious code, was set up to look like a shocking news story. Users were encouraged to click a link in the email to find out more information. The code was downloaded when the user clicked the link. This was quite a sophisticated attack that required legitimate looking websites to be set up for a large number of companies. It is not known how much money the hackers were able to retrieve as a result. How to prevent pharming All of the guidelines to avoid being subjected to phishing are also relevant for recognising pharming. There are also several other precautions that can be taken to check for pharming attacks. These include: •Have a firewall installed and operational. A firewall monitors incoming and outgoing traffic from your computer. It checks this traffic against set criteria and will flag and stop any traffic that does not meet the criteria. A firewall could detect and block suspicious traffic, such as a malicious code trying to enter your system. •Have an anti-virus program installed that is designed to detect malicious pharming code. You need to scan your computer on a regular basis to check for any malicious code. It is advisable to set up an automatic scan on a daily basis at a time when your computer will normally be switched on. •Be aware when using public Wi-Fi connections. A hacker could look to directly access your computer and install the malicious code if you are connected to a public Wi-Fi connection. It is often advisable to use a VPN when using public Wi-Fi. This will help shield your internet activity and personal details from a hacker, making it more difficult for them to access your computer. Smishing can also be used as a form of pharming. A user is sent a link, that when they click is designed to download malware onto their mobile device. Therefore, it is advisable to have security software installed on your mobile and also scan it regularly to detect any presence of malware.

To the Lakota, and other indigenous people on North America's Great Plains, the bison was an essential part of their culture ( expressed in the quote on the previous page). The bison provided meat for nutrition, a hide for clothing and shelter, bones for tools, and fat for soap. The bison was also central to their religious beliefs. So, when European settlers hunted the bison nearly to extinction, Lakota culture suffered. Culture is central to a society and the identity of its people, as well as its continued existence. Therefore, geographers study culture as a way to understand similarities and differences among societies across the world, and in some cases, to help preserve these societies. Analyzing Culture All of a group's learned behaviors, actions, beliefs, and objects are a part of culture. It is a visible force seen in a group's actions, possessions, and influence on the landscape. For example, in a large city you can see people working in offices, factories, and stores, and living in high-rise apartments or suburban homes. You might observe them attending movies, concerts, or sporting events. Culture is also an invisible force guiding people through shared belief systems, customs, and traditions. Culture is learned, in that it develops through experiences, and not merely transmitted through genetics. For example, many people in the United States have developed a strong sense of competitiveness in school and business, and believe that hard work is a key to success. These types of elements, visible and invisible, are cultural traits. A series of interrelated traits make up a cultural complex, such as the process of steps and acceptable behaviors related to greeting a person in different cultures. A single cultural artifact, such as an automobile, may represent many different values, beliefs, behaviors and traditions and be representative of a cultural complex. Since culture is learned there are many ways that one generation passes its culture to the next. Children and adults learn traits three ways: • imitation, as when learning a language by repeating sounds or behaviors from a person or television • informal instruction, as when a parent reminds a child to say "please" • formal instruction, as when students learn history in school 132 HUMAN GEOGRAPHY: AP" EDITION CULTURAL COMPLEX OF THE AUTOMOBILE The automobile provides much more than just transportation, as it reflects many values that are central to American culture. Origins of Culture The area in which a unique culture or a specific trait develops is a culture hearth. Classical Greece was a culture hearth for democracy more than 2,000 years ago. New York City was a culture hearth for rap music in the 1970s. Geographers study how cultures develop in hearths and diffuse-or spread-to other places. Geographers also study taboos, behaviors heavily discouraged by a culture. For example, many cultures have taboos against eating certain foods, such as pork or insects. What is considered taboo changes over time. In the United States, marriages between Protestants and Catholics were once taboo, but they are not widely opposed now. Traditional, Folk, and Indigenous Cultures With the beginning of the Industrial Revolution in the late 18th century, modern transportation and communication connected people as never before and led to extensive cultural mixing, especially as cities have grown. The world prior to this time was very different; however, remnants of the past are still evident in our modern cultures. Traditional, folk, and indigenous cultures share some important characteristics and are often grouped together, but they do have some subtle differences. Traditional Culture Recently, the meanings of traditional, folk, and indigenous culture have begun to merge, causing geographers to debate when each should be used. Increasingly, the term traditional culture is used to encompass all three cultural designations. All three types share the function of passing down long-held beliefs, values, and practices and are generally resistant to rapid changes in their culture. Folk Culture The beliefs and practices of small, homogenous groups of people, often living in rural areas that are relatively isolated and slow to change, are known as folk cultures. Like all cultures, they demonstrate the diverse ways that people have adapted to a physical environment. For example, people around the world learned to make shelters out of available resources, whether 3.1: INTRODUCTION TO CULTURE 133 it was snow or mud bricks or wood. However, people used similar resources such as wood differently. In Scandinavia, people used trees to build cabins. In the American Midwest, people processed trees into boards, built a frame, and attached the boards to it. Many traits of folk culture continue today. Corn was first grown in Mexico around 10,000 years ago, and it is still grown there today. While many elements of folk culture exist side by side with modern culture, there are people whose societies have changed little, if at all, from long ago. These people practice traditional cultures, those which have not been affected by modern technology or influences. They often live in remote regions, such as some small tribes in the Amazon rainforest, and have scant knowledge of the outside world. As the lines continue blurring between cultural designations, the Amish of Pennsylvania are often referenced as both folk and traditional culture. Indigenous Culture When members of an ethnic group reside in their ancestral lands, and typically possess unique cultural traits, such as speaking their own exclusive language, they are considered an indigenous culture. Some indigenous peoples have been displaced from their native lands, but still practice their indigenous culture. Native Americans in the United States, such as the Navajo, have kept indigenous cultural practices. First Nations of Canada, such as the Inuit, have also retained their indigenous culture. Globalization and Popular Culture As a result of the Industrial Revolution, improvements in transportation and communication have shortened the time required for movement, trade, or other forms of interaction between two places. This development, known as space-time compression (see Topics 1.4 and 3.6), has accelerated culture change around the world. In 1817, a freight shipment from Cincinnati needed 52 days to reach New York City. By 1850, because of canals and railroads, it took half that long. And by 1852, it took only 7 days. Today, an airplane flight takes only a few hours, and digital information takes seconds or less. Similar change has occurred on the global scale. People travel freely across the world in a matter of hours, and communication has advanced to a point where people share information instantaneously across the globe. The increased global interaction has had a profound impact on cultures, from spreading English across the world to instant sharing of news, events and music. Globalization specifically refers to the increased integration of the world economy since the 1970s. The process of intensified interaction among peoples, governments, and companies of different countries around the globe has had profound impacts on culture. The culture of the United States is intertwined with globalization. Through the influence of its corporations, Hollywood movies, and government, the United States exerts widespread influence in other countries. But other countries also shape American culture. For example, in 2019, the National Basketball Association included players from 38 countries or territories. When cultural traits- such as clothing, music, movies, and types of 134 HUMAN GEOGRAPHY: AP. EDITION businesses-spread quickly over a large area and are adopted by various groups, they become part of popular culture. Elements of popular culture often begin in urban areas and diffuse quickly through globalization processes such as the media and Internet. These elements can quickly be adopted worldwide, making them part of global culture. People around the world follow European soccer, Indian Bollywood movies, and Japanese animation known as anime. With people in many nations wearing similar clothes, listening to similar music, and eating similar food, popular cultural traits often promote uniformity in beliefs, values, and the cultural landscape across many places The cultural landscape, also known as the built environment (see Topic 3.2), is the modification of the environment by a group and is a visible reflection of that group's cultural beliefs and values. Traditional Culture to Popular Culture Popular culture emphasizes trying what is new rather than preserving what is traditional. Many people, especially older generations or those who follow a folk culture, openly resist the adoption of popular cultural traits. They do this by preserving traditional languages, religions, values, and foods. While older generations often resist the adoption of popular culture, they seldom are successful in keeping their traditional cultures from changing, especially among the young people of their society. One clash between popular and traditional culture is occurring in Brazil. As the population expands to the interior of the rain forest, many indigenous cultures, like the Yanamamo tribe, have more contact with outside groups. Remaining isolated by the forest is becoming increasingly difficult as many young people from the indigenous cultures become exposed to popular culture and begin to integrate into the larger Brazilian society. As the young people leave their communities, they are more likely to accept popular culture at the expense of their indigenous cultural heritage, which threatens the very existence of their folk culture. Traditional culture typically exhibits horizontal diversity, meaning each traditional culture has its own customs and language that makes it distinct from other culture groups. Yet, people people within each group are usually homogeneous, or very similar to each other. By contrast, popular culture typically exhibits vertical diversity, meaning that modern urban societies are usually heterogeneous, or exhibiting differences, within the society and usually contain numerous multiethnic neighborhoods. However, on a global scale popular cultures are relatively similar with the same type of malls, shops, fast food, and clothing. Urban global culture centers are not identical, yet, global cities often do not have as much horizontal diversity across space as folk cultures. 3.1: INTRODUCTION TO CULTURE 135 COMPARING TRADITIONAL AND POPULAR CULTURE Trait Traditional Culture Popular or Global Culture Society • Rural and isolated location • Urban and connected location • Homogeneous and • Diverse and multiethnic indigenous population population • Most people speak an • Many people speak a global indigenous or ethnic local language such as English or language Arabic • Horizontal diversity • Vertical diversity Social • Emphasis on community and • Emphasis on individualism and Structure conformity making choices • Families live close to each • Dispersed families other • Weakly defined gender roles • Well-defined gender roles Diffusion • Relatively slow and limited • Relatively rapid and extensive • Primarily through relocation • Often hierarchical • Oral traditions and stories • Social media and mass media Buildings and • Materials produced locally, • Materials produced in distant Housing such as stone or grass factories, such as steel or glass • Built by community or owner • Built by a business • Similar style for community • Variety of architectural styles • Different between cultures • Similar between cities • Traditional architecture • Postmodern / contemporary architecture Food • Locally produced • Often imported • Choices limited by tradition • Wide range of choice • Prepared by the family or • Purchased in restaurants community Spatial Focus • Local and regional • National and global Artifacts, Mentifacts, and Sociofacts Whether a cultural attribute is considered traditional, folk, indigenous, or popular in nature, it is valuable to differentiate between elements of culture that can be seen and those that can not. There are artifacts that comprise the material culture, which consists of tangible things, or those that can be experienced by the senses. Art, clothing, food, music, sports, and housing types are all tangible elements of culture. Another element of the study of artifacts is understanding the techniques to use or build a specific artifact. Artifacts can be unique to a particular culture, or can be shared. For example, people of all cultures need to communicate through language, yet there are many groups that possess languages unique to their culture. The ability to read, write and understand the English language is an artifact of importance for much of popular global culture. 136 HUMAN GEOGRAPHY: AP" EDITION Mentifacts comprise a group's nonmaterial culture and consist ofintangible concepts, or those not having a physical presence. Beliefs, values, practices, and aesthetics (pleasing in appearance) determine what a cultural group views as acceptable and desirable. Mentifacts can also be unique or shared. People of many cultures possess an belief in one or many deities, and often the deities are unique to that culture. The belief in a god is a mentifact-the religious building or symbols are artifacts. Cultural groups also possess sociofacts, which are the ways people organize their society and relate to one another. Taken altogether, people tend to see the whole of their culture as greater than the sum of its individual parts. Sociofacts are embodied through families, governments, sports teams, religious organizations, education systems, and other social constructs. As with artifacts and mentifacts, sociofacts may also be unique or similar to other societies. Families are the foundations of most societies, yet what constitutes the structure of a family may vary widely between cultural groups. For example, Western cultures tend to view the nuclear family, consisting of the parents and their children as the basic family unit. By contrast, in many Western African cultures the norm is the extended family, consisting of several generations and other family members such as cousins living under one roof.

'used to' + infinitive and 'be' or 'get used to' + '-ing'

Used to, would, be used to and get used to

Introduction to Hedging Instruments: Forwards, Futures, Options, and Swaps Hedging instruments are financial tools used by businesses and investors to mitigate risk. These instruments help protect against adverse price movements in assets such as commodities, currencies, interest rates, or securities. The four main hedging instruments are forwards, futures, options, and swaps. 1. Forwards A forward contract is a customised agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. Key Characteristics: Over-the-counter (OTC): Traded directly between parties, not on an exchange. Customisation: Can be tailored to suit the needs of the parties involved. Settlement: Occurs at the end of the contract, which may involve physical delivery or cash settlement. Risk: Forwards carry counter-party risk, as there is a possibility one party may default. Example: A company that needs to import raw materials in six months may enter into a forward contract to lock in the current price, avoiding the risk of price increases. 2. Futures A futures contract is similar to a forward, but it is standardised and traded on an exchange. This standardisation eliminates counter-party risk. Key Characteristics: Standardised: Contract size, expiration, and other terms are fixed by the exchange. Mark-to-market: Gains and losses are settled daily. Liquidity: Futures are highly liquid because they are traded on exchanges. Regulation: As they are traded on formal exchanges, they are more regulated than forwards. Example: A wheat farmer may sell futures contracts to hedge against a possible decline in wheat prices before harvest. 3. Options Options provide the right, but not the obligation, to buy or sell an asset at a specified price on or before a certain date. There are two types of options: call options and put options. Call Option: Gives the holder the right to buy an asset at a predetermined price. Put Option: Gives the holder the right to sell an asset at a predetermined price. Key Characteristics: Premium: The buyer pays a premium upfront to obtain the option. Limited Risk: The maximum loss is limited to the premium paid. Flexibility: Options can be used for speculative or hedging purposes. Example: An investor holding stocks may buy a put option to protect against potential declines in the stock's price. 4. Swaps A swap is a contract in which two parties agree to exchange cash flows or liabilities over a specific period. The most common types are interest rate swaps and currency swaps. Key Characteristics: Customizable: Like forwards, swaps are often tailored to meet the needs of the parties involved. Counterparty Risk: Swaps are typically OTC instruments, exposing parties to default risk. Common Uses: Used to manage interest rate risk or currency risk. Example: A company with a variablerate loan may enter into an interest rate swap to exchange its variable payments for fixedrate payments, thus locking in stable costs. Hedging instruments are essential for managing financial risk in volatile markets. Each instrument serves different purposes, with varying levels of complexity, risk, and customization. Whether through forwards, futures, options, or swaps, businesses can better plan for the future by reducing exposure to uncertain price fluctuations. Hedging Strategies for Market Risk, Credit Risk, and Currency Risk 1. Hedging Strategies for Market Risk Market risk (also known as systematic risk) arises from fluctuations in asset prices, such as stocks, bonds, commodities, and interest rates, due to economic factors or market volatility. Key Hedging Instruments for Market Risk: Derivatives (Options, Futures, and Forwards): These instruments allow investors to hedge against unfavorable price movements in stocks, commodities, or interest rates. Example: An investor holding a large stock portfolio might buy a put option to protect against a potential market downturn. If the market declines, the put option increases in value, offsetting losses in the portfolio. Short Selling: Investors can sell borrowed assets with the expectation of buying them back at a lower price, profiting from the decline. Example: A fund manager expecting a market decline may short sell stocks to hedge a portfolio against losses. Common Hedging Strategies: Portfolio Diversification: Reducing market risk by spreading investments across various asset classes (stocks, bonds, commodities) and sectors. Using Index Futures: Large portfolios can be hedged using index futures that track the performance of the overall market. If the market declines, profits from the short position in the futures contract will offset losses in the portfolio. Risk Parity: Allocating assets based on the level of risk rather than the dollar amount invested, balancing risk exposure across asset classes. 2. Hedging Strategies for Credit Risk Credit risk refers to the possibility that a borrower will default on a debt obligation. This is especially important for banks, lenders, and institutions dealing with bonds and loans. Key Hedging Instruments for Credit Risk: Credit Default Swaps (CDS): A financial derivative where the buyer of a CDS pays a premium to the seller in exchange for protection against a default on a loan or bond. Example: A bank holding corporate bonds can buy a CDS to ensure they are compensated if the issuing company defaults. Collateralised Debt Obligations (CDOs): These instruments pool together various debt instruments and allow risk to be distributed among multiple investors. Credit Insurance: Companies may use insurance to protect against the risk of a customer defaulting on payments. Common Hedging Strategies: Diversification of Loan Portfolio: Spreading out credit exposures across various industries, geographies, and borrower profiles reduces the overall risk of default. Tightening Lending Standards: Limiting exposure to highrisk borrowers by implementing stringent credit assessments. AssetBacked Securities: Banks can sell loans or bonds packaged as assetbacked securities to reduce their exposure to credit risk. 3. Hedging Strategies for Currency Risk Currency risk (or exchange rate risk) arises from fluctuations in foreign exchange rates, which can affect companies involved in international trade or with investments in foreign countries. Key Hedging Instruments for Currency Risk: Forward Contracts: A firm agrees to exchange a specified amount of currency at a predetermined exchange rate on a future date. Example: A U.S. exporter expecting payment in euros might enter into a forward contract to sell euros and lock in a favorable exchange rate. Currency Options: These give the right, but not the obligation, to buy or sell currency at a specific price. Example: A U.S.based company buying goods from Japan might buy a call option on the yen to hedge against the risk of yen appreciation. Currency Swaps: Two parties exchange interest payments and principal in different currencies to hedge against exchange rate fluctuations. Common Hedging Strategies: Natural Hedging: Companies can offset currency risk by balancing foreign revenue with costs in the same currency. For example, if a company generates revenue in euros, it can also incur expenses in euros, reducing exposure to exchange rate fluctuations. Multi-Currency Invoicing: Firms can invoice in their home currency, shifting the currency risk to the buyer. Currency Diversification: Holding a diversified basket of currencies can reduce exposure to large fluctuations in any one currency. Effective hedging strategies are crucial for managing various types of risks in financial markets. Market risk can be managed using instruments like futures and options, while credit risk can be mitigated through diversification and credit derivatives. Currency risk, often faced by multinational firms, can be hedged using forward contracts, options, or swaps. Each strategy helps firms and investors protect their portfolios, ensure financial stability, and reduce the impact of adverse movements in the financial markets. Portfolio Risk Management Techniques: Diversification, Asset Allocation, and Risk Budgeting Managing risk is a fundamental aspect of portfolio management. Investors use various techniques to control and reduce the risks inherent in investing. Three key techniques used in portfolio risk management are diversification, asset allocation, and risk budgeting. Each of these techniques helps in mitigating potential losses while aiming to achieve the desired return. 1. Diversification Diversification is a risk management strategy that involves spreading investments across different assets, sectors, or geographic regions to reduce exposure to any single risk. The idea is that different assets perform differently under various market conditions, so losses in one investment can be offset by gains in others. Key Benefits of Diversification: Reduction of Unsystematic Risk: Unsystematic risk, which is unique to a specific company or industry, can be reduced by holding a variety of investments that respond differently to market conditions. Improved Stability: A diversified portfolio is less volatile, as the negative performance of one asset can be balanced by the positive performance of others. Methods of Diversification: Across Asset Classes: Investing in a mix of asset classes such as stocks, bonds, commodities, and real estate. Example: A portfolio with 60% equities, 30% bonds, and 10% commodities is more diversified than one solely consisting of stocks. Within Asset Classes: Diversifying within a single asset class (e.g., holding stocks from different sectors like technology, healthcare, and energy). Geographic Diversification: Investing in assets across various countries or regions to mitigate country-specific risks. Example: Holding U.S. stocks along with emerging market equities can reduce risks related to a downturn in one country's economy. 2. Asset Allocation Asset allocation refers to the process of dividing investments among different asset classes (such as stocks, bonds, and cash) to align with an investor's risk tolerance, time horizon, and financial goals. Asset allocation plays a crucial role in portfolio risk management by determining the overall risk-return profile of the portfolio. Key Elements of Asset Allocation: Strategic Asset Allocation: A longterm approach that involves setting target allocations for different asset classes based on financial goals and risk tolerance. Example: A young investor with a longterm horizon might allocate 70% to stocks, 20% to bonds, and 10% to cash. Tactical Asset Allocation: A more active approach that involves adjusting the asset mix in response to short-term market conditions. Example: If the investor expects an economic downturn, they might temporarily reduce exposure to equities and increase exposure to bonds. Types of Asset Allocation Models: Conservative: Focuses on preserving capital with a larger allocation to bonds and cash (e.g., 20% stocks, 80% bonds). Balanced: A moderate risk approach with an equal focus on growth and income (e.g., 50% stocks, 50% bonds). Aggressive: Targets higher returns by investing predominantly in equities, accepting higher risk (e.g., 80% stocks, 20% bonds). Example of Asset Allocation: A 40 year old investor with moderate risk tolerance may allocate their portfolio as follows: 50% equities, 40% bonds, and 10% in alternative investments such as real estate or commodities. The equities provide growth potential, while the bonds and alternative assets offer stability and income. 3. Risk Budgeting Risk budgeting is a method of allocating risk across different components of a portfolio, rather than focusing solely on returns. The goal is to optimise the portfolio’s risk-return profile by distributing risk in a way that aligns with the investor’s objectives and risk tolerance. Key Concepts of Risk Budgeting: Risk Contribution: Each asset class or investment in the portfolio contributes a certain amount of risk (measured by metrics such as volatility or Value at Risk). Risk budgeting ensures that no single asset class dominates the overall risk of the portfolio. Example: A portfolio may contain 60% stocks and 40% bonds, but if the stocks are highly volatile, they may contribute 90% of the portfolio's risk. Target Risk: Investors set a maximum acceptable level of risk (e.g., a portfolio volatility of 10%) and allocate investments so that the total risk remains within this target. Techniques in Risk Budgeting: Risk Parity: Allocates risk evenly across asset classes, rather than allocating capital based solely on return expectations. Example: In a risk-parity portfolio, both bonds and stocks might be balanced in such a way that they contribute equally to the overall portfolio risk, even though the dollar investment in bonds may be larger due to their lower volatility. Value at Risk (VaR): This technique measures the potential loss in a portfolio over a specific time period, under normal market conditions, at a given confidence level. The risk budget ensures that the potential loss stays within acceptable limits. Example of Risk Budgeting: An investor targets an overall portfolio risk of 8% volatility. After analyzing the risk contribution of each asset class, they determine that equities, which currently make up 60% of the portfolio, contribute 70% of the risk. To adhere to the risk budget, the investor may reduce their equity exposure and increase their allocation to bonds or other less volatile assets. Diversification, asset allocation, and risk budgeting are complementary techniques used in portfolio risk management. Diversification reduces unsystematic risk by spreading investments across various assets. Asset allocation ensures that investments align with an investor's goals and risk tolerance. Risk budgeting focuses on managing the contribution of risk from each asset class to create a balanced and efficient portfolio. Together, these strategies help investors achieve a balance between risk and return, ensuring longterm portfolio stability. Risk Mitigation Through Insurance, Securitisation, and Other Financial Engineering Techniques Risk mitigation is a core objective in financial management, and various strategies can be employed to reduce or manage risks. Three major approaches are insurance, securitisation, and financial engineering techniques. Each of these methods helps firms and individuals transfer, reduce, or eliminate certain financial risks. 1. Insurance as a Risk Mitigation Tool Insurance is a traditional risk transfer method that protects against financial losses by shifting the risk to an insurance company in exchange for premium payments. It is widely used to mitigate various forms of risk, such as operational, liability, and property risks. Key Aspects of Insurance for Risk Mitigation: Risk Transfer: The insurer takes on the risk in exchange for a premium, thus protecting the insured party from unexpected financial losses. Indemnity: In the event of a loss, the insurance policy compensates the insured based on the terms of the contract. Customisable Coverage: Insurance policies can be tailored to address specific risks, such as property damage, business interruption, liability, or cyber risks. Types of Insurance for Businesses: Property and Casualty Insurance: Covers physical assets like buildings, machinery, and inventory from risks like fire, theft, or natural disasters. Liability Insurance: Protects businesses against legal liabilities arising from accidents, negligence, or professional errors. Business Interruption Insurance: Compensates for lost income if a business has to halt operations due to unforeseen events. Credit Insurance: Shields companies from losses due to the nonpayment of trade receivables. 2. Securitisation as a Risk Mitigation Technique Securitisation is a financial engineering process that involves pooling various financial assets (such as loans, mortgages, or receivables) and converting them into marketable securities. This process allows firms to transfer risk to investors, thereby reducing their exposure. Key Elements of Securitisation: Risk Transfer: By securitising assets, companies can transfer the risk of default or nonpayment to investors who purchase the securities. Liquidity Creation: Securitisation converts illiquid assets (like mortgages or loans) into liquid, tradeable securities, improving cash flow for the originating firm. Diversification of Risk: Pooling assets with different risk profiles reduces the impact of individual defaults, spreading the risk across multiple investors. Common Forms of Securitisation: MortgageBacked Securities (MBS): Pools of mortgages are bundled and sold as securities to investors, transferring the risk of mortgage defaults. Example: A bank that issues home loans can bundle those loans into MBS and sell them to investors, transferring the credit risk of potential defaults. Asset-Backed Securities (ABS): Similar to MBS, but backed by other types of assets like credit card receivables, auto loans, or student loans. Collateralised Debt Obligations (CDOs): Structured financial products that pool different types of debt, such as loans and bonds, and sell them as securities with varying risk levels. Example: A bank may issue a portfolio of auto loans and then pool these loans into an assetbacked security (ABS). The ABS is sold to investors, who take on the risk of loan defaults. By securitising the loans, the bank reduces its exposure to credit risk and generates immediate cash flow. 3. Financial Engineering Techniques for Risk Mitigation Financial engineering involves the use of complex financial instruments, derivatives, and structured products to manage or mitigate financial risks. These techniques allow firms to hedge against specific risks, optimize capital structure, and improve financial stability. Common Financial Engineering Techniques: Derivatives: Financial instruments like futures, forwards, options, and swaps are used to hedge against price fluctuations, interest rate changes, or currency movements. Example: A company with significant foreign exchange exposure may use currency forwards or options to hedge against exchange rate fluctuations, ensuring predictable cash flows. Options and Futures: Options: Provides the right (but not the obligation) to buy or sell an asset at a predetermined price, allowing firms to hedge against unfavorable price movements. Example: An airline company can buy options on jet fuel to hedge against rising fuel prices. Futures: Standardized contracts to buy or sell an asset at a set price on a future date, commonly used to hedge commodities or financial assets. Example: A wheat producer may use futures contracts to lock in a favorable price for its crop, hedging against a potential price drop. Swaps: These involve the exchange of cash flows between two parties, often used to manage interest rate risk or currency risk. Interest Rate Swaps: Firms can exchange floatingrate interest payments for fixedrate payments to hedge against rising interest rates. Currency Swaps: Used to hedge exchange rate risk in crossborder transactions by exchanging principal and interest payments in different currencies. Example: A company with a variablerate loan may enter into an interest rate swap to exchange its variable payments for fixedrate payments, locking in stable costs. Structured Products: These are customised financial instruments designed to achieve specific riskreturn objectives. They often combine derivatives with other securities to create tailored risk exposures. Example: A structured note that combines a bond with an embedded option, offering downside protection while allowing for potential upside linked to the performance of an equity index. Credit Derivatives: Tools like credit default swaps (CDS) allow investors to transfer credit risk to other parties. Example: A bondholder worried about a company’s potential default may purchase a CDS, which pays out in case of a default event. Example: A company may issue a bond with an embedded call option, allowing it to repurchase the bond if interest rates decline. This financial engineering tool enables the company to mitigate the risk of rising interest rates, reducing future borrowing costs. Risk mitigation through insurance, securitisation, and financial engineering offers businesses a variety of tools to manage and transfer risks. Insurance allows for the direct transfer of risk to an insurer, while securitisation helps companies offload risk by packaging and selling assets as securities. Financial engineering techniques, including derivatives, swaps, and structured products, provide sophisticated ways to hedge market, interest rate, and currency risks. Each approach helps organizations improve financial stability, enhance liquidity, and manage potential losses in a volatile market environment.

Covalent Molecules and Compounds Just as an atom is the simplest unit that has the fundamental chemical properties of an element, a molecule is the simplest unit that has the fundamental chemical properties of a covalent compound. Some pure elements exist as covalent molecules. Hydrogen, nitrogen, oxygen, and the halogens occur naturally as the diatomic (“two atoms”) molecules H2, N2, O2, F2, Cl2, Br2, and I2 (part (a) in Figure 3.1.1). Similarly, a few pure elements exist as polyatomic (“many atoms”) molecules, such as elemental phosphorus and sulfur, which occur as P4 and S8 (part (b) in Figure 3.1.1). Each covalent compound is represented by a molecular formula, which gives the atomic symbol for each component element, in a prescribed order, accompanied by a subscript indicating the number of atoms of that element in the molecule. The subscript is written only if the number of atoms is greater than 1. For example, water, with two hydrogen atoms and one oxygen atom per molecule, is written as H2O. Similarly, carbon dioxide, which contains one carbon atom and two oxygen atoms in each molecule, is written as CO2. Covalent compounds that predominantly contain carbon and hydrogen are called organic compounds. The convention for representing the formulas of organic compounds is to write carbon first, followed by hydrogen and then any other elements in alphabetical order (e.g., CH4O is methyl alcohol, a fuel). Compounds that consist primarily of elements other than carbon and hydrogen are called inorganic compounds; they include both covalent and ionic compounds. In inorganic compounds, the component elements are listed beginning with the one farthest to the left in the periodic table, as in CO2 or SF6. Those in the same group are listed beginning with the lower element and working up, as in ClF. By convention, however, when an inorganic compound contains both hydrogen and an element from groups 13–15, hydrogen is usually listed last in the formula. Examples are ammonia (NH3) and silane (SiH4). Compounds such as water, whose compositions were established long before this convention was adopted, are always written with hydrogen first: Water is always written as H2O, not OH2. The conventions for inorganic acids, such as hydrochloric acid (HCl) and sulfuric acid (H2SO4), are described elswhere. Note! For organic compounds: write C first, then H, and then the other elements in alphabetical order. For molecular inorganic compounds: start with the element at far left in the periodic table; list elements in same group beginning with the lower element and working up. Write the molecular formula of each compound. a. The phosphorus-sulfur compound that is responsible for the ignition of so-called strike anywhere matches has 4 phosphorus atoms and 3 sulfur atoms per molecule. b. Ethyl alcohol, the alcohol of alcoholic beverages, has 1 oxygen atom, 2 carbon atoms, and 6 hydrogen atoms per molecule. c. Freon-11, once widely used in automobile air conditioners and implicated in damage to the ozone layer, has 1 carbon atom, 3 chlorine atoms, and 1 fluorine atom per molecule. Solution: a. • A The molecule has 4 phosphorus atoms and 3 sulfur atoms. Because the compound does not contain mostly carbon and hydrogen, it is inorganic. • B Phosphorus is in group 15, and sulfur is in group 16. Because phosphorus is to the left of sulfur, it is written first. • C Writing the number of each kind of atom as a right-hand subscript gives P4S3 as the molecular formula. b. • A Ethyl alcohol contains predominantly carbon and hydrogen, so it is an organic compound. • B The formula for an organic compound is written with the number of carbon atoms first, the number of hydrogen atoms next, and the other atoms in alphabetical order: CHO. • C Adding subscripts gives the molecular formula C2H6O. c. • A Freon-11 contains carbon, chlorine, and fluorine. It can be viewed as either an inorganic compound or an organic compound (in which fluorine has replaced hydrogen). The formula for Freon-11 can therefore be written using either of the two conventions. • B According to the convention for inorganic compounds, carbon is written first because it is farther left in the periodic table. Fluorine and chlorine are in the same group, so they are listed beginning with the lower element and working up: CClF. Adding subscripts gives the molecular formula CCl3F. • C We obtain the same formula for Freon-11 using the convention for organic compounds. The number of carbon atoms is written first, followed by the number of hydrogen atoms (zero) and then the other elements in alphabetical order, also giving CCl3F. Write the molecular formula for each compound. a. Nitrous oxide, also called “laughing gas,” has 2 nitrogen atoms and 1 oxygen atom per molecule. Nitrous oxide is used as a mild anesthetic for minor surgery and as the propellant in cans of whipped cream. b. Sucrose, also known as cane sugar, has 12 carbon atoms, 11 oxygen atoms, and 22 hydrogen atoms. c. Sulfur hexafluoride, a gas used to pressurize “unpressurized” tennis balls and as a coolant in nuclear reactors, has 6 fluorine atoms and 1 sulfur atom per molecule. Answer: a. N2O b. C12H22O11 c. SF6. Ionic Compounds The substances described in the preceding discussion are composed of molecules that are electrically neutral; that is, the number of positively-charged protons in the nucleus is equal to the number of negatively-charged electrons. In contrast, ions are atoms or assemblies of atoms that have a net electrical charge. Ions that contain fewer electrons than protons have a net positive charge and are called cations. Conversely, ions that contain more electrons than protons have a net negative charge and are called anions. Ionic compounds contain both cations and anions in a ratio that results in no net electrical charge. Note! Ionic compounds contain both cations and anions in a ratio that results in zero electrical charge.An ionic compound that contains only two elements, one present as a cation and one as an anion, is called a binary ionic compound. One example is MgCl2, a coagulant used in the preparation of tofu from soybeans. For binary ionic compounds, the subscripts in the empirical formula can also be obtained by crossing charges: use the absolute value of the charge on one ion as the subscript for the other ion. This method is shown schematically as follows: Crossing charges. One method for obtaining subscripts in the empirical formula is by crossing charges. When crossing charges, it is sometimes necessary to reduce the subscripts to their simplest ratio to write the empirical formula. Consider, for example, the compound formed by Mg2+ and O2−. Using the absolute values of the charges on the ions as subscripts gives the formula Mg2O2:Polyatomic Ions Polyatomic ions are groups of atoms that bear net electrical charges, although the atoms in a polyatomic ion are held together by the same covalent bonds that hold atoms together in molecules. Just as there are many more kinds of molecules than simple elements, there are many more kinds of polyatomic ions than monatomic ions. Two examples of polyatomic cations are the ammonium (NH4+) and the methylammonium (CH3NH3+) ions. P. The method used to predict the empirical formulas for ionic compounds that contain monatomic ions can also be used for compounds that contain polyatomic ions. The overall charge on the cations must balance the overall charge on the anions in the formula unit. Thus, K+ and NO3− ions combine in a 1:1 ratio to form KNO3 (potassium nitrate or saltpeter), a major ingredient in black gunpowder. Similarly, Ca2+ and SO42− form CaSO4 (calcium sulfate), which combines with varying amounts of water to form gypsum and plaster of Paris. The polyatomic ions NH4+ and NO3− form NH4NO3 (ammonium nitrate), a widely used fertilizer and, in the wrong hands, an explosive. One example of a compound in which the ions have charges of different magnitudes is calcium phosphate, which is composed of Ca2+ and PO43− ions; it is a major component of bones. The compound is electrically neutral because the ions combine in a ratio of three Ca2+ ions [3(+2) = +6] for every two ions [2(−3) = −6], giving an empirical formula of Ca3(PO4)2; the parentheses around PO4 in the empirical formula indicate that it is a polyatomic ion. Writing the formula for calcium phosphate as Ca3P2O8 gives the correct number of each atom in the formula unit, but it obscures the fact that the compound contains readily identifiable PO43− ions.Summary • There are two fundamentally different kinds of chemical bonds (covalent and ionic) that cause substances to have very different properties. • The composition of a compound is represented by an empirical or molecular formula, each consisting of at least one formula unit.Contributors The atoms in chemical compounds are held together by attractive electrostatic interactions known as chemical bonds. Ionic compounds contain positively and negatively charged ions in a ratio that results in an overall charge of zero. The ions are held together in a regular spatial arrangement by electrostatic forces. Most covalent compounds consist of molecules, groups of atoms in which one or more pairs of electrons are shared by at least two atoms to form a covalent bond. The atoms in molecules are held together by the electrostatic attraction between the positively charged nuclei of the bonded atoms and the negatively charged electrons shared by the nuclei. The molecular formula of a covalent compound gives the types and numbers of atoms present. Compounds that contain predominantly carbon and hydrogen are called organic compounds, whereas compounds that consist primarily of elements other than carbon and hydrogen are inorganic compounds. Diatomic molecules contain two atoms, and polyatomic molecules contain more than two. A structural formula indicates the composition and approximate structure and shape of a molecule. Single bonds, double bonds, and triple bonds are covalent bonds in which one, two, and three pairs of electrons, respectively, are shared between two bonded atoms. Atoms or groups of atoms that possess a net electrical charge are called ions; they can have either a positive charge (cations) or a negative charge (anions). Ions can consist of one atom (monatomic ions) or several (polyatomic ions). The charges on monatomic ions of most main group elements can be predicted from the location of the element in the periodic table. Ionic compounds usually form hard crystalline solids with high melting points. Covalent molecular compounds, in contrast, consist of discrete molecules held together by weak intermolecular forces and can be gases, liquids, or solids at room temperature and pressure. An empirical formula gives the relative numbers of atoms of the elements in a compound, reduced to the lowest whole numbers. The formula unit is the absolute grouping represented by the empirical formula of a compound, either ionic or covalent. Empirical formulas are particularly useful for describing the composition of ionic compounds, which do not contain readily identifiable molecules. Some ionic compounds occur as hydrates, which contain specific ratios of loosely bound water molecules called waters of hydration.

Earth's History. All the processes that have been discussed require long periods of time to create a noticeable change on Earth's surface. You can just imagine how long it would take to create an oceanS as vast as the Pacific Ocean if the ocean floor moves only at about 10 cm/year. It is then important to know the history of Earth to learn the complexities of its past and be able to use it to understand the present. Just like learning the history of a country that requires one to read a lot of books, learning the history of Earth involves studying a lot of rocks. Rocks, especially sedimentary rocks, contain a lot of information about Earth's past. It holds the key to most of the geologic processes that happened on Earth and the key to uncovering how life on Earth evolved. But these discoveries are worthless if there is no time perspective. Thus, one of the most important contributions of geologists to mankind is the geologic time scale, which holds a history that is exceedingly long.The geologic time scale divides the history of Earth into different blocks of time by using relative dating. Since geologists use rocks to understand Earth's history, dating does not give accurate numerical dates, it only tells that an event preceded the relative dating places these rocks in their proper sequence of formation. But relative other. This method is still widely used today, alongside a more accurate method called absolute dating, which uses radioactive elements. With relative and absolute dating. geologists can trace the history of Earth. Relative Dating. Relative dating requires one to know the basic principles such as law of super-position, principle of original horizontality, principle of cross-cutting relationships, and unconformities.Law of Superposition The law of superposition is the most basic principle in relative dating. It states that in an undeformed sequence of sedimentary rock, the layers found at the top are the youngest rocks and the layers at the bottom are the oldest. It may seem too obvious, but this principle has only been clearly stated in 1669 by the Danish anatomist, geologist, and priest, Nicolaus Steno. Principle of Original Horizontality Along with the law of superposition, Steno stated that an undeformed sequence is the one where the layers are still in a horizontal position. This follows the principle of original horizontality, which states that sediments are deposited horizontally. Principle of Cross-Cutting Relationships The principle of cross-cutting relationships determines which events occurred first depending on which rocks are affected. The geologic layer that cuts another is younger than the layer it cuts across.Unconformities Rock layers that have not been interrupted are considered conformable. These sites represent spans of geologic time. But there is no place on Earth that has a complete conformable stratum since external and internal processes have always interrupted the deposition of the sediments. These breaks in the record of the rock strata are called unconformities. Using unconformities, geologic events are determined. There are three basic types of unconformities angular unconformity, disconformity, and nonconformity. Angular unconformity is characterized by having tilted or folded sedimentary rocks below younger, horizontal layers of rock. Disconformity is determined where there are missing parallel rock layers. Erosion takes place and removes the younger top layers and then deposition would once again happen. Nonconformity is characterized by an igneous or metamorphic rock found below a sedimentary rock. Figure 3-13. Three basic types of unconformities Using these principles for relative dating, one can determine the order of events However, relative dating does not give a time element as to when they happened. Absolute Dating For a much more accurate method of determining the history of Earth, geologists make use of absolute dating. This method uses unstable elements to determine the exact age of rocks. Isotopes are elements that have the same number of protons but different number of neutrons. Most isotopes are stable but some may be unstable. This is because the forces that bind the protons and neutrons in the nucleus of the isotope are not strong enough to hold them together, resulting in a radioactive decay, The unstable isotopes are called radioactive isotopes or parent isotopes. When these parent isotopes undergo radioactive decay, new isotopes, known as daughter products, are formed. The time it takes for one-half of the nuclei in the sample to decay is called half-life. This amount of time is fixed for each kind of radioactive isotope no matter what physical conditions it is subjected to. The ratio of parent daughter isotope determines how many half-lives have passed. If it is 1:1, then one half-life has passed; if it is 1:3, then two half-lives have passed; and if 1:7, then three half-lives have passed, and so on. Therefore, using the concept of half-life and parent-daughter ratio, geologists can determine the exact age of the sample. This method is called radiometric dating. It uses five radioactive isotopes to determine the age of rocks. For dating rocks that are about a million years old, rubidium-87, thorium-232, and the two isotopes of uranium (U-238 and U-235) are used. The fifth radioactive isotope is potassium-40, which has a half-life of 1.3 billion years. With these radioactive elements, determining the accurate age of rocks becomes easier. For dating events that are more recent, radiocarbon dating is used. This method uses carbon-14. Carbon-14 has a half-life of 5730 years and can be used to date back events up to 75000 years. All organisms contain a small amount of carbon-14, which is proportional with the amount of carbon-12. When an organism dies, the carbon-14 decays and is no longer replaced. The amount of carbon-14 left in the sample is then compared to the amounts of carbon-12 present, and radiocarbon dates can then be determined. This method has been particularly useful for anthropologists, archeologists, historians, and geologists for events that are much more recent.Fossils Aside from rocks, geologists also use the remains of living organisms in understanding Earth's history. Some fossils are formed from parts of an organism (body fossil), while some provide signs or clues as to which life-forms were present at that time (Frace fossils). Fossils contain a lot of information about the past the kind of organisms that have lived, the environment where organisms lived, and the evolution organisms underwent as their environment changed. However, not all organisms turned into fossils, therefore, scientists cannot learn everything about the past using fossils alone. There are also fossils that are used to determine the age of a rock. These are index fossils and these are only found in rocks of a particular age. The organisms that turned into index fossils have a relatively short life-spanning from a few million years to a few hundred million years. Index fossils are also found in most of the common rocks around the world, which makes them easier to identify.The methods used for dating the age of rocks are also used for fossils. Absolute dating is more commonly used since it can give exact numerical dates for the age, but relative dating can also be used to determine which fossils are older.

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