Lesson 1: Investment Setting Flashcards
Is both a science and an art of correct application of the economic and accounting concepts and principles that define the system structure and process of management allocation and utilization of financial resources investments and expnditures.
Finance
Giving up immediate consumption of excess earnings or savings for a future larger amount of money that will be available for future consumption.
Investment
Trade-off of present consumption for a higher level of future consumption.
Investment
It is a broad field that encompasses the management of resources within an organization or for an individual.
Finance
Deals with money management, including budgeting, financial planning, risk management, and financial decision-making.
Finance
It is a broader field that deals with the overall management of financial resources.
Finance
Specifically refers to the allocation of money or capital for the expectation of generating future income or profit.
Investment
It includes purchasing assets in the hope that they will appreciate value or generate more wealth over time.
Investment
It is a specific subset of finance that involves allocating capital with the expectation of earning a return on that capital over time.
Investment
The current commitment of investment
- The time the funds are committed
- the expected inflation rate during this period
- the uncertainty of future payments
Funds invested in tangible and productive assets such as machines, land, or plant
Real Investment
The productive capacity of the economy
Real Investment
Funds invested in paper or electronic contracts such as stocks and bonds
Financial Investment
Means by which individuals in wel developed economies hold their claims on real assets
Financial Investment
Advantages of Investing in Financial Assets
1.Divisibility
2. Marketability or Liquidity
3. Shorter holding period
4. Information availability
People who are investing on their own.
Individual Investors
May be referred as retail Investors
Individual investors
Legal entities that pool resources to purchase securities and other investment
Institutional Investors
Trade securities in large quantities
Institutional InvestorsB
Buying or selling financial instruments through financial markets
Direct Investing
Buying or selling financial instruments through financial intermediaries
Indirect Investing
Has Control; Can decide when to buy/sell
Direct Investing
Professionally managed; Allow small investors to invest; Allow investors to own diversified pools of risks and returns
Indirect Investment
Common types of financial investment vehicles
a. Short-term investment vehicles
b. Fixed-Income securities
c. Common Stock
d. Speculative Investment Vehicle
Known as money market instruments
Short-term Investment Vehicles
Matures in a year or less
Short-term Investment Vehicles
Can be liquidated to cash quickly
Short-term Investment Vehicles
Examples of Short-term Investment Vehicles
- Certificate of deposits
- Treasury bills
- Commercial paper
Long term investment
Fixed Income Security
Known as Capital Market Instruments
Fixed Income Security
Return is fixed over a certain period of time
Fixed Income Security
Examples of Fixed Income Security
a. Preferred stock
b. Long-term debt securities (bonds)
Debt instrument issued by the government that matures longer than a year
Treasury notes/bonds
longer term debt instruments. A means by which private institutions borrow money from the public.
Corporate Bonds
Examples of Long term debt securities (bonds)
- secured bonds
- unsecured bonds (debentures)
- callable bonds
- convertible bonds
Are Common stocks
Equity Securities
Ownership share in a corporation
Equity Securities
Has a residual claim and a limited liability feature
Equity Securities
