Chapter 22: Direct and Indirect Investments

Question 1

Direct investment

Answer 1

• Investor buys financial instruments in own name, financial instruments are owned by investor. Example = shareholder.
• Is beyond most consumers due to fees per buy/sell, you need a minimum volume to not make a loss

Question 2

Indirect distribution

Answer 2

• Private investors are not allowed to trade on the stock market
• Only professional traders e.g. FIs
• Investor uses an intermediary = indirect distribution

Question 3

Indirect Investment

Answer 3

• Carried out by an investment institution
• Private investor buys units/certificates from investment institution
• Investment institution invests in shares, bonds etc depending on policy of the association and spreads the risk

Question 4

Investment funds

Answer 4

Four basic types:
* Liquidity funds
* bond funds
* property funds
* equity funds

Variants
* Mixed funds = combo of two or more categories
* Country funds/regional funds = investments only in certain country etc
* sector funds = only in certain sector e.g. ICT
* Theme funds: only certain theme e.g. sustainable energy
* Index funds: follows a stock market compsite index e.g. AEX index or Dow-Jones index

Question 5

Negotiability / Tradability of units

Answer 5

Open-ended investment funds on stock exchange = Units of participation are sold by fund on the stock market
Closed-ended investment funds not listed on the stock exchange = investor can only buy/sell units directly with the fund