Scribd
Upload
42 views13 pages

Investment: A Compress View To Investment

The document discusses different types of assets, including real assets which determine economic productivity and financial assets which are claims on real assets. It describes three main types of financial assets: fixed income/debt, common stock/equity, and derivative securities. It also discusses how financial markets allocate resources in the economy and the various players involved, including business firms, households, governments, and financial intermediaries like banks and investment companies.

Uploaded by

Daneve Obero
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
42 views13 pages

Investment: A Compress View To Investment

The document discusses different types of assets, including real assets which determine economic productivity and financial assets which are claims on real assets. It describes three main types of financial assets: fixed income/debt, common stock/equity, and derivative securities. It also discusses how financial markets allocate resources in the economy and the various players involved, including business firms, households, governments, and financial intermediaries like banks and investment companies.

Uploaded by

Daneve Obero
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 13

Investment

A compress view to Investment


Real Assets Versus Financial
Assets
• Real Assets
• Determine the productive capacity and net
income of the economy
• Examples: Land, buildings, machines,
knowledge used to produce goods and
services

• Financial Assets
• Claims on real assets

1-2
Financial Assets

• Three types:
1. Fixed income or debt
2. Common stock or equity
3. Derivative securities

1-3
Fixed Income
• Payments fixed or determined by a formula

• Money market debt: short term, highly


marketable, usually low credit risk

• Capital market debt: long term bonds, can be safe


or risky

1-4
Common Stock and Derivatives
• Common Stock is equity or ownership in a
corporation.
• Payments to stockholders are not fixed, but
depend on the success of the firm
• Derivatives
• Value derives from prices of other securities,
such as stocks and bonds
• Used to transfer risk

1-5
Financial Markets and the Economy

• Information Role: Capital flows to companies


with best prospects

• Consumption Timing: Use securities to store


wealth and transfer consumption to the future

1-6
Financial Markets and the
Economy (Ctd.)

• Allocation of Risk: Investors can select securities


consistent with their tastes for risk

• Separation of Ownership and Management: With


stability comes agency problems

1-7
Financial Markets and the
Economy (Ctd.)
• Corporate Governance and Corporate Ethics
• Accounting Scandals
• Examples – Enron, Rite Aid, HealthSouth
• Auditors – watchdogs of the firms
• Analyst Scandals
• Arthur Andersen
• Sarbanes-Oxley Act
• Tighten the rules of corporate governance

1-8
Markets are Competitive

• Risk-Return Trade-Off

• Efficient Markets
• Active Management
• Finding mispriced securities
• Timing the market

1-9
Markets are Competitive (Ctd.)

• Passive Management
• No attempt to find undervalued securities
• No attempt to time the market
• Holding a highly diversified portfolio

1-10
The Players

• Business Firms– net borrowers

• Households – net savers

• Governments – can be both borrowers and


savers

1-11
The Players (Ctd.)

• Financial Intermediaries: Pool and invest funds


• Investment Companies
• Banks
• Insurance companies
• Credit unions

1-12
Universal Bank Activities
Investment Banking Commercial Banking
• Underwrite new stock
and bond issues • Take deposits and make
• Sell newly issued loans
securities to public in the
primary market
• Investors trade previously
issued securities among
themselves in the
secondary markets

1-13

You might also like