Investment Setting PDF

Investment Setting Finance 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 expenditures. Investment...

Investment Setting Finance 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 expenditures. Investment Giving up immediate consumption of excess earnings or savings for a future larger amount of money that will be available for future consumption Trade-off of present consumption for a higher level of future consumption Finance. It is a broad field that encompasses the management of resources within an organization or for an individual. Deals with money management, including budgeting, financial planning, risk management, and financial decision-making. It is a broader field that deals with the overall management of financial resources. Investment. Specifically refers to the allocation of money or capital for the expectation of generating future income or profit. It includes purchasing assets in the hope that they will appreciate value or generate more wealth over time. 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 a certain pesos for a period of time in order to derive future payments that will compensate the investor for (1) the time the funds are committed (2) the expected inflation rate during this period (3) the uncertainty of future payments Trading a known dollar amount today for some expected future stream of payments that will be greater than the current dollar today Investment Real Investment – funds invested in tangible and productive assets such as machines, land, or plant (real assets) - the productive capacity of the economy Financial investment – funds invested in paper or electronic contracts such as stocks and bonds (financial assets) - Means by which individuals in well developed economies hold their claims on real assets Investment Advantages of Investing In Financial Assets a) Divisibility b. )Marketability or Liquidity c.) Shorter holding period d.) Information Availability Investment Individual Investors- people who are investing on their own. - may be referred as retail investors Institutional Investors – legal entities that pool resources to purchase securities and other investment - trade securities in large quantities Investment Direct investing – buying or selling financial instruments directly in financial markets Indirect investing – buying or selling financial instruments trough financial intermediaries Investment DIRECT INVESTMENT INDIRECT INVESTMENT - Control -Professionally managed - Can decide when to buy/sell -Allow small investors to invest -allow investors to own diversified pools of risks and returns Investment Common types of Financial Investment Vehicles a. Short term investment vehicles b. Fixed-income securities c. Common Stock d. Speculative investment vehicle Short term Investment vehicle - Known as money market instruments - Matures in a year or less - Can be liquidated to cash quickly Examples: certificate of deposits treasury bills commercial paper Fixed Income Security -Long term investment -capital market instruments -return is fixed over a certain period of time Examples: preferred stock long term debt securities (bonds) Long term debt securities (bonds) Treasury notes/bonds –debt instrument issued by the government that matures longer than a year. Corporate bonds – longer term debt instruments. A means by which private institutions borrow money from the public example: secured bonds unsecured bonds (debentures) callable bonds convertible bonds Equity securities Common stocks Ownership share in a corporation. has a residual claim and a limited liability feature Financial Markets Capital Market Money Market Primary Market Secondary Market FEATURES MONEY MARKET CAPITAL MARKET Terms of circulation Short-term Long term Less than 1 year More than 1 year Level of Risk Low, because of trading short- Long-term securities traded in this term securities which have lower market is more risky level of risk and high liquidity Fund Suppliers Commercial banks, non-financial Banks, insurance companies, business institutions with the pension funds, lending the large excess funds amounts of funds for long-term period, investment funds with big pools of funds for investing Financial Instruments Certificates of deposits Common stocks, preferred stocks, Treasury bills, Commercial Paper treasury bonds, corporate bonds, Other short-term investment and other long term investment vehicles vehicles Aims for raising funds For financing of working capital For financing of further business and current needs development and investment projects