Final answer:
A bond portfolio manager who believes in market efficiency will likely adopt a passive management approach, whereas one who thinks they can predict interest rate changes or spot anomalies will opt for an active management style. These styles affect how mutual funds and other investments are handled, with portfolio investments being more liquid and potentially less involved than foreign direct investments.
Step-by-step explanation:
If a bond portfolio manager believes in market efficiency, he or she is likely to be a passive portfolio manager, which means they invest with the assumption that it is difficult to outperform the market consistently through active management due to markets being efficient and thus, prices reflecting all available information. On the other hand, if the manager believes that he or she can accurately predict interest rate changes, or identify bond market anomalies, he or she is likely to be an active portfolio manager. Active managers make investment decisions based on market trends, economic conditions, and other factors with the goal of outperforming the market average or a specific benchmark.
Understanding these concepts is essential when considering investments in mutual funds, which are professionally managed investment programs. They offer advantages such as liquidity and the potential for diversified portfolios, which aim to provide increased expected returns without a proportional increase in risk, although they can be costly. The contrast between portfolio investments and foreign direct investments (FDI) exemplifies the different strategies and timelines investors may use. Portfolio investments can be liquidated much faster than FDIs, which may involve managerial responsibilities and longer-term plans.