Tretty Advisers Company (TAC) is a an ICIFA-registered investment Advisory firm solely involved in managing international securities portfolios. After much research on the developing economy and capital markets of the country of Mauritius, TAC has decided to include an investment in the Mauritius Stock market in its Emerging Market Commingled Fund. However, TAC has not yet decided whether to invest actively or by indexing. Your opinion on the active versus indexing decision has been solicited. A summary of the research findings follows:

Mauritius's economy is fairly well diversified across agricultural and natural resources, manufacturing (both consumer and durable goods), and a growing finance sector. Transaction costs in securities markets are relatively large in Mauritius because of high commissions and government "stamp taxes" on securities trades. Accounting standards and disclosure regulations are quite detailed, resulting in wide public availability of reliable information about companies' financial performance.

Capital flows into and out of Mauritius and foreign ownership of Mauritius securities are strictly regulated by an agency of the national government. The settlement procedures under these ownership rules often cause long delays in settling trades made by nonresidents. Senior finance officials in the government are working to deregulate capital flows and foreign ownership, but TAC's political consultant believes that isolationist sentiment may prevent much real progress in the short run.

(a) Briefly discuss four aspects of the Mauritius environment that favor investing actively and four aspects that favor indexing.

(b) Recommend whether TAC should invest in Mauritius actively or by indexing and justify your recommendation based on the factors identified in Part (a