Prelim Flashcards
1
Q
Refers to assets acquired to realize income and earn profit.
They are expected to increase one’s equity or reduce future financial worries. Investing requires sacrificing some of current pleasures with the hope and expectation that resources acquired will enhance the future.One has to save to be able to invest
A
Investment
2
Q
Refers to the process of defining investment objectives,
adopting and executing strategies to optimize results considering the risks involved, and evaluating performance periodically.
A
Investment Management
3
Q
refers to the brief case that is used in carrying business papers and documents. In business, it refers to the aggregate of assets held as investments.
A
Portfolio
4
Q
May consist of bank accounts,
treasury bills, bonds, commercial papers,
precious metals and stones, stocks and real estate.
A
Investment Portfolio
5
Q
are made to protect one’s financial resources from the corroding effects of inflation.
A
Investment as hedge against inflation
6
Q
refers to the amount of money that an organization or individual can afford to keep in some forms of investment for a definite length of period without hampering his day-to-day operations. It may come from excessive cash inflow from operations, extraordinary gains and disposal of idle assets.
A
Investable cash
7
Q
It acts as a financial safety net that is usually kept in accessible accounts
A
Liquidity Buffer
8
Q
3 steps in Investment Management
A
- Setting your goals/objectives
- Adapting a strategy
- Evaluating perfor periodically
9
Q
2 Common ways to invest money
A
- Through stocks
- Through Bonds
10
Q
Factors of Investment
A
- Risk
- Return
- How long does he money can be Invested
11
Q
Different forms of Investment
A
- Savings account
- Time Deposit
- Premium savings account
- Trust Investment
- Treasury Bills
- Commercial Papers
- Mutual funds
- Bonds
- Shares of Stocks
- Derivatives
- Real estate
- Precious Stones and metals
- Other forms of Investment
(Artworks and collectibles)
12
Q
This is lending to the bank cash deposits that can be withdrawn anytime.
A
Savings account
13
Q
This is lending to the bank for a fixed length of period. It earns interest higher than savings account do.
A
Time Deposit
14
Q
This earns a rate higher than that on the ordinary time deposit.
A
Premium savings account
15
Q
These are pooling of investors’ money as evidenced by certificates issued by trustee banks who are authorized to invest the money.
A
Trust Investment
16
Q
These are short-term promissory notes issued by the national government.
A
Treasury Bills
17
Q
These are interest bearing promissory notes issued by big firms and are considered a low-risk form of marketable securities. Most of these are asset-backed securities.
A
Commercial Papers
18
Q
These are a pooling of investors’ money by a stock corporation that issues redeemable shares of stock.
A
Mutual funds
19
Q
These are interest bearing certificate of indebtedness issued by an organization.
A
Bonds
20
Q
These are shares in the ownership of corporate entities and are evidenced by stock certificates.
A
Shares of stocks
21
Q
These are financial instruments the value of which is derived from the value of other assets. Examples are options and futures contracts.
A
Derivatives
22
Q
This refers to the right but not the obligation to buy or sell something at a specified price and at a specified date or period of time.
A
Option
23
Q
These are forward type contracts wherein buyer and seller are committed to trade a given asset at a set price on a fixed date. They are often referred to as futures.
A
Future contracts
24
Q
This refers to real property ( land and buildings).
A
Real estate
25
stones generally refers to a diamonds, because they appreciate in value due to their rarity.
Precious metals are platinum, gold and silver.
Precious Stones and metals
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may be works of art and other collectibles.
Other forms of investment
27
Is like a report card for company to borrow. an opinion on the financial soundness of an enterprise and its capability to pay its debts and the corresponding interest.
It is used as a tool in determining the degree of risk involved in making investments and compliments an investor’s credit evaluation of a prospective borrower or issuer of debts securities (commercial papers and bonds).
Credit ratings
28
It is how much risk a person is comfortable with.
Risk tolerance
29
refer to nonrealization of expected earnings or loss of capital
Risk
30
refers to spreading investable funds to different investment items. As much as possible, one’s investments should be a mix of different types of assets. This is observed in order to benefit from the advantages that each of them brings about,
to avoid putting one’s money in “one basket” and consequently minimize risk from over-exposure to only one kind of asset. It may also include investment among the different assets under one category.
Diversification of investment
31
2 reasons why Diversification is Important
1. It protects your money
2. It takes advantage of different opportunities
32
This would be going to the extreme of spreading the investable funds to so many items of investment.
Overdiversification
33
This refers to the investor’s cash requirements for monthly operations and planned changes therein as reflected in his cash budget.
Investor's cash needs
34
How cash budget os identified
1. Cash budget tracks when extra cash is available
2. It diligates when money is in need
35
Types of investors
1. Conservative investors
2. Aggressive investors
3. Balance investors
36
An investor with so many financial obligations, limited earnings or with limited resources would prefer to play it safe by putting his money in fixed income and lowrisk financial instruments such as time deposit certificates and treasury bills. On the other hand, an investor with more than sufficient earnings, adequate savings and other financial resources would allocate his investible funds to the different forms of investments.
Financial Limitations
37
It is how long an investor plans to keep their money in an investment before using it
Time Horizon
38
Factors of Time Horizon
1. Time table
2. Age
3. Financial Position
4. Number of dependents
39
2 People who can manage investment
1. The investor himself
2. The portfolio manager
40
2 main types of financial market
1. Money market instrument
2. Capital market
41
This refers to timing investment maturities at staggered dates to jibe with expected or planned cash outlays.
Laddered investment
42
This refers to buying and selling items of investment when it is advisable to do so. In other words, get in and out of the market at the most opportune time
Market Timing
43
investment that is aggressive for it entails more risk but bigger rewards. Stock investment is an example.
Offensive investment
44
Investment that entails less risks but smaller rewards. In most cases, it brings in fixed amount of income or gain upon sale can be predetermined.
Defensive Investments
45
This refers to how investible funds are allocated between the different investment items.
Investment mix
46
the person or office given the authority to make decisions regarding the investments of an individual or entity. In some cases, the investor himself opts to manage his investments. In cases wherein the investor does not have the time or the capability to do so,
a professional manager is hired. The latter is hired based on his formal educational background, experience, and familiarity with financial markets.
Portfolio manager
47
48
are the venues for buying and selling financial instruments. They are usually classified into money markets and capital markets.
Financial markets
49
are those that are often referred to as near-cash items and include short-term,
marketable, low-risk debt securities such as commercial papers and treasury bills.
Money market instrument
50
the financial instruments dealt with are the longer and riskier securities such as bonds,
stocks and derivatives.
Capital markets
51
This refers to failing to understand one’s overall financial situation and how wise investments fit in. Financial goals should be set considering one’s tax situation, debt obligations, retirement provisions and insurance coverage.
Failure to make financial plan for the future
52
Risk tolerance varies depending on one’s source of income, personality,lifestyle, financial goals and investment time frame. Often times, risk is avoided by putting all funds in savings accounts and time deposits. The other extreme would be taking too much risk so that one goes to the extent of borrowing money to invest in high-risk items of investment.
Miscalculating risk tolerance
53
This refers to the failure to set aside sufficient amount of money for emergency needs so that an investor is apt to sell a long-term investment when prices are down. There should be sufficient savings to serve as a buffer in case requirements for cash exceeds earnings. These may be in bank accounts and treasury bills.
Failing to keep sufficient contingency funds
54
In a layman’s language, this refers to joining the crowd to wherever it goes. In investments, it is buying when everybody is buying and selling when everybody is doing so. This often results in high acquisitions cost and low selling price.
Jumping on the bandwagon.
55
This refers to putting too many eggs in one basket or maintaining only one form of investment so that the investor is apt to suffer significant loss if something goes wrong with it.
Inability to have leverage.
56
This refers to spreading investable funds to so many items of investment resulting in minimum gains because the investor is unable to keep track of developments that affect each of them and to earn more on the more profitable investment items.
Over-diversification
57
This refers to the failure to look forward to a number of years in the future by merely buying and selling at small margins.
Erroneous timing of the market
58
This refers to the inability to sell at a loss when prices are going down. In some cases, investors are hesitant to recognize losses so that capital remains idle for so many years thereby depriving themselves of the chance to earn profit in other forms of investment.
Inability to cut losses
59
The Philippines should be considered as an attractive site for investments primarily because it is customer-rich, it is very resilient and its market is volatile. Its population is more or less 75 million at the time of this writing, it has weathered so many crises, and investors can take advantage of the ups and downs. As the old saying goes,
“there is opportunity in crisis”.
Investment climate in the Philippines
60
may be in the form of savings accounts, time deposits and special savings deposits or premium savings accounts. A checking account may also be maintained to control expenditures. Upon opening a bank account, one becomes a lender to the bank. The latter treats the account as a liability and includes it as such in its balance sheet.
Bank Accounts
61
Factors to nb considered when opening a bank account
1. Minimum balance required
2. Interest rates or rates
3. Limitations as to withdrawals
4. The bank's reputation
5. Insurance
62
a type of bank account from which withdrawals are made by issuing checks.
Deposits are made with the use of deposit slips. It is often called a checking account. It is maintained to separate cash intended for normal operations and to control disbursements. It may be used as a clearing account to which all checks received are deposited. After they are cleared,
the depositor transfers the different amounts to other bank accounts (such as savings and time deposits) for the portions thereof that are so intended.
Current account
63
is a type of bank account wherein deposits thereto and withdrawals therefrom can be made any time. Thus, it is preferably maintained to take care of minor emergency requirements,
deposits that are small in amount and those that are intended to be withdrawn anytime during the month.
Deposits and withdrawals are made with the use of deposit and withdrawal slips, respectively. All transactions are reflected on the passbook provided by the bank. The required minimum balance ranges from P500 to P1,000.
Savings account
64
This refers to non-withdrawal of income earned on an investment so that it becomes part of the principal in succeeding periods. In effect, additional income is realized on previous income. In the case of bank accounts, additional interest is earned in the past.
Compounding
65
is a loan to a bank for a fixed term. Time deposits are evidenced by certificates of time deposits (CTDs). The minimum in the Philippines is one month so that a depositor may roll over his account monthly should he intend to keep his money and all its earnings in the account. In the Philippines, there is no penalty imposed in case the depositor decides to pre-terminate his time deposit. He merely foregoes the corresponding interest income.
Time Deposits
66
Some banks offer additional time deposit accounts that will earn interest rates higher than those applied to ordinary time deposits. In some of them they call the account Special Savings Deposit (SSD), Special Savings Account (SSA), Mega Savings Account, or Premium Savings Account. However, the minimum amount required is P100,000 at the time of this writing. Interest earned on this account is computed monthly and the accounts are renewable every month at the shortest. In the Philippines, these accounts are withdrawable anytime without penalty but subject to adjustment for the corresponding interest. They are also insured with the PDIC to the extent of P100,000 in as much as they are part of normal bank operations. Instead of receiving certificates for SSDs, a server should prefer a passbook to save on documentary stamps.
Special Time Deposits
67
Also known as common trust fund refers to cash entrusted to a trustee bank for investment in chosen items such as treasury bills, loans, stocks and bonds for the benefit of the designated beneficiary. The investor is called the trustor or grantor. Banks usually offer two kinds of trust investment services namely those on retail basis and those for big investors. On the retail basis, trust investments are accepted from individuals with minimum placement set at P100,000. For big investors (individuals and corporations), the minimum placement ranges from P1,000,000 to P4,000,000. The investor is given the option as to which item of investment vehicle financial resources should be placed in.
Trust Investment
68
are written evidences of ownership, interest, or participation, in an enterprise, or written evidences of indebtedness of a person or enterprise. Securities may be bought from the primary market or the secondary market.
Securities
69
Classification of Securities markets
1. Based on maturity
-money markets
-capital markets
2. Based on who is selling
-primary Market
-secondary market
70
are evidences of indebtedness issued by an entity as a vehicle in borrowing from the public. Upon their issuance,
they evidence the transfer of financial resources from a lender to a borrower. They include commercial papers, commercial bonds and government securities. The latter are in the form of treasury bills and treasury bonds.
Credit Securities
71
