University of Jahangir Nagar

Institute of Business Administration

WMBA Programme, Fall 2013
FIN 502: Investment Analsis and Portfolio Management
!e"ture#1
Course Instructor:
$%is% &aider '%o(d%ur
s%is%"%o(d%ur)a%oo*"o*u+
'ell: 01, 1-2255-.
/ $e0tem1er 2013
1.1.Investing versus financing
2%e term 3investing4 "ould 1e asso"iated (it% t%e different a"tivities, 1ut t%e "ommon target in
t%ese a"tivities is to 5em0lo4 t%e mone 6funds7 during t%e time 0eriod see+ing to en%an"e t%e
investor8s (ealt%* Funds to 1e invested "ome from assets alread o(ned, 1orro(ed mone and
savings* B foregoing "onsum0tion toda and investing t%eir savings, investors e90e"t to
en%an"e t%eir future "onsum0tion 0ossi1ilities 1 in"reasing t%eir (ealt%* But it is useful to ma+e
a distin"tion 1et(een real and finan"ial investments* :eal investments generall involve some
+ind of tangi1le asset, su"% as land, ma"%iner, fa"tories, et"* Finan"ial investments involve
"ontra"ts in 0a0er or ele"troni" form su"% as sto"+s, 1onds, et"* Follo(ing t%e o1;e"tive as it
0resented in t%e introdu"tion t%is "ourse deals onl (it% t%e finan"ial investments 1e"ause t%e
+e t%eoreti"al investment "on"e0ts and 0ortfolio t%eor are 1ased on t%ese investments and
allo( to anal<e investment 0ro"ess and investment management de"ision ma+ing in t%e
su1stantiall 1roader "onte9t $ome information 0resented in some "%a0ters of t%is material
develo0ed for t%e investments "ourse "ould 1e familiar for t%ose (%o %ave studied ot%er
"ourses in finan"e, 0arti"ularl "or0orate finan"e* 'or0orate finan"e t0i"all "overs su"% issues
as "a0ital stru"ture, s%ort#term and long#term finan"ing, 0ro;e"t analsis, "urrent asset
management*
'a0ital stru"ture addresses t%e =uestion of (%at t0e of long#term finan"ing is t%e 1est for t%e
"om0an under "urrent and fore"asted mar+et "onditions> 0ro;e"t analsis is "on"erned (it% t%e
determining (%et%er a 0ro;e"t s%ould 1e underta+en* 'urrent assets and "urrent lia1ilities
management addresses %o( to manage t%e da#1#da "as% flo(s of t%e firm* 'or0orate
finan"e is also "on"erned (it% %o( to allo"ate t%e 0rofit of t%e firm among s%are%olders
6t%roug% t%e dividend 0aments7, t%e government 6t%roug% ta9 0aments7 and t%e firm itself
6t%roug% retained earnings7* But one of t%e most im0ortant =uestions for t%e "om0an is
finan"ing* Modern firms raise mone 1 issuing sto"+s and 1onds* 2%ese se"urities are traded
in t%e finan"ial mar+ets and t%e investors %ave 0ossi1ilit to 1u or to sell se"urities issued 1
t%e "om0anies* 2%us, t%e investors and "om0anies, sear"%ing for finan"ing, reali<e t%eir interest
in t%e same 0la"e ? in finan"ial mar+ets* 'or0orate finan"e area of studies and 0ra"ti"e involves
t%e intera"tion 1et(een firms and finan"ial mar+ets and Investments area of studies and
0ra"ti"e involves t%e intera"tion 1et(een investors and finan"ial mar+ets* Investments field also
differ from t%e "or0orate finan"e in using t%e relevant met%ods for resear"% and de"ision
ma+ing*
Investment 0ro1lems in man "ases allo( for a =uantitative analsis and modeling a00roa"%
and t%e =ualitative met%ods toget%er (it% =uantitative met%ods are more often used anal<ing
"or0orate finan"e 0ro1lems* 2%e ot%er ver im0ortant differen"e is, t%at investment analsis for
de"ision ma+ing "an 1e 1ased on t%e large data sets availa1le form t%e finan"ial mar+ets, su"%
as sto"+ returns, t%us, t%e mat%emati"al statisti"s met%ods "an 1e used* But at t%e same time
1ot% 'or0orate Finan"e and Investments are 1uilt u0on a "ommon set of finan"ial 0rin"i0les,
su"% as t%e 0resent value, t%e future value, t%e "ost of "a0ital7* And ver often investment and
finan"ing analsis for de"ision ma+ing use t%e same tools, 1ut t%e inter0retation of t%e results
from t%is analsis for t%e investor and for t%e finan"ier (ould 1e different* For e9am0le, (%en
issuing t%e se"urities and selling t%em in t%e mar+et t%e "om0an 0erform valuation loo+ing for
t%e %ig%er 0ri"e and for t%e lo(er "ost of "a0ital, 1ut t%e investor using valuation sear"% for
attra"tive se"urities (it% t%e lo(er 0ri"e and t%e %ig%er 0ossi1le re=uired rate of return on
%is@%er investments*
2oget%er (it% t%e investment t%e term speculation is fre=uentl used* $0e"ulation "an 1e
des"ri1ed as investment too, 1ut it is related (it% t%e s%ort#term investment %ori<ons and
usuall involves 0ur"%asing t%e sala1le se"urities (it% t%e %o0e t%at its 0ri"e (ill in"rease
ra0idl, 0roviding a =ui"+ 0rofit* $0e"ulators tr to 1u lo( and to sell %ig%, t%eir 0rimar "on"ern
is (it% anti"i0ating and 0rofiting from mar+et flu"tuations* But as t%e flu"tuations in t%e finan"ial
mar+ets are and 1e"ome more and more un0redi"ta1le s0e"ulations are treated as t%e
investments of %ig%est ris+* In "ontrast, an investment is 1ased u0on t%e analsis and its main
goal is to 0romise safet of 0rin"i0le sum invested and to earn t%e satisfa"tor ris+* 2%ere are
two types of investors:
##individual investors>
##Institutional investors*
Individual investors are individuals (%o are investing on t%eir o(n* $ometimes individual
investors are "alled retail investors* Institutional investors are entities su"% as investment
"om0anies, "ommer"ial 1an+s, insuran"e "om0anies, 0ension funds and ot%er finan"ial
institutions* In re"ent ears t%e 0ro"ess of institutionali<ation of investors "an 1e o1served* As
t%e main reasons for t%is "an 1e mentioned t%e fa"t, t%at institutional investors "an a"%ieve
e"onomies of s"ale, demogra0%i" 0ressure on so"ial se"urit, t%e "%anging role of 1an+s* Ane
of im0ortant 0re"onditions for su""essful investing 1ot% for individual and institutional investors
is t%e favora1le investment environment* Aur fo"us in develo0ing t%is "ourse is on t%e
management of individual investors8 0ortfolios* But t%e 1asi" 0rin"i0les of investment
management are a00li"a1le 1ot% for individual and institutional investors*
1.2. Direct versus indirect investing
Investors "an use dire"t or indire"t t0e of investing* Direct investing is reali<ed using finan"ial
mar+ets and indirect investing involves finan"ial intermediaries* 2%e 0rimar differen"e 1et(een
t%ese t(o t0es of investing is t%at a00ling dire"t investing investors 1u and sell finan"ial
assets and manage individual investment 0ortfolio t%emselves* 'onse=uentl, investing dire"tl
t%roug% finan"ial mar+ets investors ta+e all t%e ris+ and t%eir su""essful investing de0ends on
t%eir understanding of finan"ial mar+ets, its flu"tuations and on t%eir a1ilities to anal<e and to
evaluate t%e investments and to manage t%eir investment 0ortfolio*
'ontrar, using indire"t t0e of investing investors are 1uing or selling finan"ial instruments of
finan"ial intermediaries 6finan"ial institutions7 (%i"% invest large 0ools of funds in t%e finan"ial
mar+ets and %old 0ortfolios* Indire"t investing relieves investors from ma+ing de"isions a1out
t%eir 0ortfolio* As s%are%olders (it% t%e o(ners%i0 interest in t%e 0ortfolios managed 1 finan"ial
institutions 6investment "om0anies, 0ension funds, insuran"e "om0anies, "ommer"ial 1an+s7
t%e investors are entitled to t%eir s%are of dividends, interest and "a0ital gains generated and
0a t%eir s%are of t%e institution8s e90enses and 0ortfolio management fee* 2%e ris+ for investor
using indire"t investing is related more (it% t%e "redi1ilit of "%osen institution and t%e
0rofessionalism of 0ortfolio managers* In general, indire"t investing is more related (it% t%e
finan"ial institutions (%i"% are 0rimaril in t%e 1usiness of investing in and managing a 0ortfolio
of se"urities 6various t0es of investment funds or investment "om0anies, 0rivate 0ension
funds7* B 0ooling t%e funds of t%ousands of investors, t%ose "om0anies "an offer t%em a
variet of servi"es, in addition to diversifi"ation, in"luding 0rofessional management of t%eir
finan"ial assets and li=uidit* Investors "an 5em0lo4 t%eir funds 1 0erforming dire"t
transa"tions, 10assing 1ot% finan"ial institutions and finan"ial mar+ets 6for e9am0le, dire"t
lending7* But su"% transa"tions are ver ris+, if a large amount of mone is transferred onl to
one8s %ands, follo(ing t%e (ell +no(n Ameri"an 0rover1 5donBt 0ut all our eggs in one 1as+et4*
2%at turns to t%e ne"essit to diversif our investments* From t%e ot%er side, dire"t transa"tions
in t%e 1usinesses are stri"tl limited 1 la(s avoiding 0ossi1ilit of mone laundering*
Table 1.1.
'om0anies "an o1tain ne"essar funds dire"tl from t%e general 0u1li" 6t%ose (%o %ave e9"ess
mone to invest7 1 t%e use of t%e finan"ial mar+et, issuing and selling t%eir se"urities*
Alternativel, t%e "an o1tain funds indire"tl from t%e general 0u1li" 1 using finan"ial
intermediaries* And t%e intermediaries a"=uire funds 1 allo(ing t%e general 0u1li" to maintain
su"% investments as savings a""ounts, 'ertifi"ates of de0osit a""ounts and ot%er similar
ve%i"les*
1.3. Investment environment
Investment environment "an 1e defined as t%e e9isting investment ve%i"les in t%e mar+et
availa1le for investor and t%e 0la"es for transa"tions (it% t%ese investment ve%i"les* 2%us
furt%er in t%is su1"%a0ter t%e main t0es of investment ve%i"les and t%e t0es of finan"ial
mar+ets (ill 1e 0resented and es"ri1ed*
1.3.1. Investment vehicles
As it (as 0resented in 1*1, in t%is "ourse (e are fo"used to t%e finan"ial investments t%at mean
t%e o1;e"t (ill 1e finan"ial assets and t%e mar+eta1le se"urities in 0arti"ular* But even if furt%er
in t%is "ourse onl t%e investments in finan"ial assets are dis"ussed, for dee0er understanding
t%e s0e"ifi"s of finan"ial assets "om0arison of some im0ortant "%ara"teristi"s of investment in
t%is t0e of assets (it% t%e investment in 0%si"al assets is 0resented* Investment in finan"ial
assets differs from investment in 0%si"al assets in t%ose im0ortant as0e"ts:
C Finan"ial assets are divisi1le, (%ereas most 0%si"al assets are not* An asset is divisible if
investor "an 1u or sell small 0ortion of it* In "ase of finan"ial assets it means, t%at investor, for
e9am0le, "an 1u or sell a small fra"tion of t%e (%ole "om0an as investment o1;e"t 1uing or
selling a num1er of "ommon sto"+s*
C Marketability (or Liquidity) is a "%ara"teristi" of finan"ial assets t%at is not s%ared 1 0%si"al
assets, (%i"% usuall %ave lo( li=uidit* Mar+eta1ilit 6or li=uidit7 refle"ts t%e feasi1ilit of
"onverting of t%e asset into "as% =ui"+l and (it%out affe"ting its 0ri"e signifi"antl* Most of
finan"ial assets are eas to 1u or to sell in t%e finan"ial mar+ets*
C 2%e 0lanned %olding 0eriod of finan"ial assets "an 1e mu"% s%orter t%an t%e %olding 0eriod of
most 0%si"al assets* The holding period for investents is defined as t%e time 1et(een signing
a 0ur"%asing order for asset and selling t%e asset* Investors a"=uiring 0%si"al asset usuall
0lan to %old it for a long 0eriod, 1ut investing in finan"ial assets, su"% as se"urities, even for
some mont%s or a ear "an 1e reasona1le* &olding 0eriod for investing in finan"ial assets var
in ver (ide interval and de0ends on t%e investor8s goals and investment strateg*
C Information a1out finan"ial assets is often more a1undant and less "ostl to o1tain, t%an
information a1out 0%si"al assets* Inforation availability s%o(s t%e real 0ossi1ilit of t%e
investors to re"eive t%e ne"essar information (%i"% "ould influen"e t%eir investment de"isions
and investment results* $in"e a 1ig 0ortion of information im0ortant for investors in su"%
finan"ial assets as sto"+s, 1onds is 0u1li"l availa1le, t%e im0a"t of man dis"losed fa"tors
%aving influen"e on value of t%ese se"urities "an 1e in"luded in t%e analsis and t%e de"isions
made 1 investors* Dven if (e anal<e onl finan"ial investment t%ere is a 1ig variet of finan"ial
investment ve%i"les* 2%e on going 0ro"esses of glo1ali<ation and integration o0en (ider
0ossi1ilities for t%e investors to invest into ne( investment ve%i"les (%i"% (ere unavaila1le for
t%em some time ago 1e"ause of t%e (ea+ domesti" finan"ial sstems and limited te"%nologies
for investment in glo1al investment environment*
Finan"ial innovations suggest for t%e investors t%e ne( "%oi"es of investment 1ut at t%e same
time ma+e t%e investment 0ro"ess and investment de"isions more "om0li"ated, 1e"ause even if
t%e investors %ave a (ide range of alternatives to invest t%e "an8t forgot t%e +e rule in
investments: invest onl in (%at ou reall understand* 2%us t%e investor must understand %o(
investment ve%i"les differ from ea"% ot%er and onl t%en to 0i"+ t%ose (%i"% 1est mat"% %is@%er
e90e"tations* 2%e most im0ortant "%ara"teristi"s of investment ve%i"les on (%i"% 1ases t%e
overall variet of investment ve%i"les "an 1e assorted are t%e return on investment and t%e ris+
(%i"% is defined as t%e un"ertaint a1out t%e a"tual return t%at (ill 1e earned on an investment*
Da"% t0e of investment ve%i"les "ould 1e "%ara"teri<ed 1 "ertain level of 0rofita1ilit and ris+
1e"ause of t%e s0e"ifi"s of t%ese finan"ial instruments* 2%oug% all different t0es of investment
ve%i"les "an 1e "om0ared using "%ara"teristi"s of ris+ and return and t%e most ris+ as (ell as
less ris+ investment ve%i"les "an 1e defined* &o(ever t%e ris+ and return on investment are
"lose related and onl using 1ot% im0ortant "%ara"teristi"s (e "an reall understand t%e
differen"es in investment ve%i"les*
2%e main types of financial investment vehicles are:
C $%ort term investment ve%i"les>
C Fi9ed#in"ome se"urities>
C 'ommon sto"+>
C $0e"ulative investment ve%i"les>
C At%er investment tools*
Short - term investment vehicles are all t%ose (%i"% %ave a maturit of one ear or less*
$%ort term investment ve%i"les often are defined as mone#mar+et instruments, 1e"ause t%e
are traded in t%e mone mar+et (%i"% 0resents t%e finan"ial mar+et for s%ort term 6u0 to one
ear of maturit7 mar+eta1le finan"ial assets* 2%e ris+ as (ell as t%e return on investments of
s%ort#term investment ve%i"les usuall is lo(er t%an for ot%er t0es of investments* 2%e main
short ter investent vehicles are:
C 'ertifi"ates of de0osit>
C 2reasur 1ills>
C 'ommer"ial 0a0er>
C Ban+ers8 a""e0tan"es>
C :e0ur"%ase agreements*
!ertificate of deposit is de1t instrument issued 1 1an+ t%at indi"ates a s0e"ified sum of mone
%as 1een de0osited at t%e issuing de0ositor institution* 'ertifi"ate of de0osit 1ears a maturit
date and s0e"ified interest rate and "an 1e issued in an denomination* Most "ertifi"ates of
de0osit "annot 1e traded and t%e in"ur 0enalties for earl (it%dra(al* For large mone#mar+et
investors finan"ial institutions allo( t%eir large#denomination "ertifi"ates of de0osits to 1e traded
as negotia1le "ertifi"ates of de0osits*
Treasury bills 6also "alled 2#1ills7 are se"urities re0resenting finan"ial o1ligations of t%e
government* 2reasur 1ills %ave maturities of less t%an one ear* 2%e %ave t%e uni=ue feature
of 1eing issued at a dis"ount from t%eir nominal value and t%e differen"e 1et(een nominal value
and dis"ount 0ri"e is t%e onl sum (%i"% is 0aid at t%e maturit for t%ese s%ort term se"urities
1e"ause t%e interest is not 0aid in "as%, onl a""rued* 2%e ot%er im0ortant feature of 2#1ills is
t%at t%e are treated as ris+#free se"urities ignoring inflation and default of a government, (%i"%
(as rare in develo0ed "ountries, t%e 2#1ill (ill 0a t%e fi9ed stated ield (it% "ertaint* But, of
"ourse, t%e ield on 2#1ills "%anges over time influen"ed 1 "%anges in overall ma"roe"onomi"
situation* 2#1ills are issued on an au"tion 1asis* 2%e issuer a""e0ts "om0etitive 1ids and
allo"ates 1ills to t%ose offering t%e %ig%est 0ri"es* Non"om0etitive 1id is an offer to 0ur"%ase t%e
1ills at a 0ri"e t%at e=uals t%e average of t%e "om0etitive 1ids* Bills "an 1e traded 1efore t%e
maturit, (%ile t%eir mar+et 0ri"e is su1;e"t to "%ange (it% "%anges in t%e rate of interest* But
1e"ause of t%e earl maturit dates of 2#1ills large interest "%anges are needed to move 2#1ills
0ri"es ver far* Bills are t%us regarded as %ig% li=uid assets*
!oercial paper is a name for s%ort#term unse"ured 0romissor notes issued 1 "or0oration*
'ommer"ial 0a0er is a means of s%ort#term 1orro(ing 1 large "or0orations* !arge, (ell#
esta1lis%ed "or0orations %ave found t%at 1orro(ing dire"tl from investors t%roug% "ommer"ial
0a0er is "%ea0er t%an reling solel on 1an+ loans* 'ommer"ial 0a0er is issued eit%er dire"tl
from t%e firm to t%e investor or t%roug% an intermediar* 'ommer"ial 0a0er, li+e 2#1ills is issued
at a dis"ount* 2%e most "ommon maturit range of "ommer"ial 0a0er is 30 to E0 das or less*
'ommer"ial 0a0er is ris+ier t%an 2#1ills, 1e"ause t%ere is a larger ris+ t%at a "or0oration (ill
default* Also, "ommer"ial 0a0er is not easil 1oug%t and sold after it is issued, 1e"ause t%e
issues are relativel small "om0ared (it% 2#1ills and %en"e t%eir mar+et is not li=uid*
"anker#s acceptances are t%e ve%i"les "reated to fa"ilitate "ommer"ial trade transa"tions*
2%ese ve%i"les are "alled 1an+ers a""e0tan"es 1e"ause a 1an+ a""e0ts t%e res0onsi1ilit to
re0a a loan to t%e %older of t%e ve%i"le in "ase t%e de1tor fails to 0erform* Ban+er3s
a""e0tan"es are s%ort#term fi9ed#in"ome se"urities t%at are "reated 1 non#finan"ial firm (%ose
0ament is guaranteed 1 a 1an+* 2%is s%ort#term loan "ontra"t t0i"all %as a %ig%er interest
rate t%an similar s%ort ?term se"urities to "om0ensate for t%e default ris+* $in"e 1an+ers8
a""e0tan"es are not standardi<ed, t%ere is no a"tive trading of t%ese se"urities*
$epurchase agreeent 6often referred to as a re0o7 is t%e sale of se"urit (it% a "ommitment 1
t%e seller to 1u t%e se"urit 1a"+ from t%e 0ur"%aser at a s0e"ified 0ri"e at a designated future
date* Basi"all, a re0o is a "olle"tivi<ed s%ort#term loan, (%ere "ollateral is a se"urit* 2%e
"ollateral in a re0o ma 1e a 2reasur se"urit, ot%er mone#mar+et se"urit* 2%e differen"e
1et(een t%e 0ur"%ase 0ri"e and t%e sale 0ri"e is t%e interest "ost of t%e loan, from (%i"% re0o
rate "an 1e "al"ulated* Be"ause of "on"ern a1out default ris+, t%e lengt% of maturit of re0o is
usuall ver s%ort* If t%e agreement is for a loan of funds for one da, it is "alled overnig%t re0o>
if t%e term of t%e agreement is for more t%an one da, it is "alled a term re0o* A reverse re0o is
t%e o00osite of a re0o* In t%is transa"tion a "or0oration 1us t%e se"urities (it% an agreement to
sell t%em at a s0e"ified 0ri"e and time* Fsing re0os %el0s to in"rease t%e li=uidit in t%e mone
mar+et* Aur fo"us in t%is "ourse furt%er (ill 1e not investment in s%ort#term ve%i"les 1ut it is
useful for investor to +no( t%at s%ort term investment ve%i"les 0rovide t%e 0ossi1ilit for
tem0orar investing of mone@ funds and investors use t%ese instruments managing t%eir
investment 0ortfolio*
Fixed-income securities are t%ose (%i"% return is fi9ed, u0 to some redem0tion date or
indefinitel* 2%e fi9ed amounts ma 1e stated in mone terms or inde9ed to some measure of
t%e 0ri"e level* 2%is t0e of finan"ial investments is 0resented 1 t(o different grou0s of
se"urities:
C !ong#term de1t se"urities
C Preferred sto"+s*
Long%ter debt securities "an 1e des"ri1ed as long#term de1t instruments re0resenting t%e
issuer8s "ontra"tual o1ligation* !ong term se"urities %ave maturit longer t%an 1 ear* 2%e 1uer
6investor7 of t%ese se"urities is landing mone to t%e issuer, (%o underta+e o1ligation
0eriodi"all to 0a interest on t%is loan and re0a t%e 0rin"i0al at a stated maturit date* !ong#
term de1t se"urities are traded in t%e "a0ital mar+ets* From t%e investor8s 0oint of vie( t%ese
se"urities "an 1e treated as a 5safe4 asset* But in realit t%e safet of investment in fi9ed ?
in"ome se"urities is strongl related (it% t%e default ris+ of an issuer* 2%e ma;or re0resentatives
of long#term de1t se"urities are bonds, 1ut toda t%ere are a 1ig variet of different +inds of
1onds, (%i"% differ not onl 1 t%e different issuers 6governments, "om0anies, agen"ies, et"*7,
1ut 1 different s"%emes of interest 0aments (%i"% is a result of 1ringing finan"ial innovations
to t%e long#term de1t se"urities mar+et* As demand for 1orro(ing t%e funds from t%e "a0ital
mar+ets is gro(ing t%e long#term de1t se"urities toda are 0revailing in t%e glo1al mar+ets* And
it is reall 1e"ome t%e "%allenge for investor to 0i"+ long#term de1t se"urities relevant to %is@ %er
investment e90e"tations, in"luding t%e safet of investment*
&referred stocks are e=uit se"urit, (%i"% %as infinitive life and 0a dividends* But 0referred
sto"+ is attri1uted to t%e t0e of fi9ed#in"ome se"urities, 1e"ause t%e dividend for 0referred
sto"+ is fi9ed in amount and +no(n in advan"e* 2%oug%, t%is se"urit 0rovides for t%e investor
t%e flo( of in"ome ver similar to t%at of t%e 1ond* 2%e main differen"e 1et(een 0referred
sto"+s and 1onds is t%at for 0referred sto"+ t%e flo(s are for ever, if t%e sto"+ is not "alla1le*
2%e 0referred sto"+%olders are 0aid after t%e de1t se"urities %olders 1ut 1efore t%e "ommon
sto"+ %olders in terms of 0riorities in 0aments of in"ome and in "ase of li=uidation of t%e
"om0an* If t%e issuer fails to 0a t%e dividend in an ear, t%e un0aid dividends (ill %ave to 1e
0aid if t%e issue is "umulative* If 0referred sto"+ is issued as non"umulative, dividends for t%e
ears (it% losses do not %ave to 1e 0aid* Fsuall same rig%ts to vote in general meetings for
0referred sto"+%olders are sus0ended* Be"ause of %aving t%e features attri1uted for 1ot% e=uit
and fi9ed#in"ome se"urities 0referred sto"+s is +no(n as %1rid se"urit* A most 0referred sto"+
is issued as non"umulative and "alla1le* In re"ent ears t%e 0referred sto"+s (it% o0tion of
"onverti1ilit to "ommon sto"+ are 0roliferating*
The common stock is t%e ot%er t0e of investment ve%i"les (%i"% is one of most 0o0ular
among investors (it% long#term %ori<on of t%eir investments* 'ommon sto"+ re0resents t%e
o(ners%i0 interest of "or0orations or t%e e=uit of t%e sto"+ %olders* &olders of "ommon sto"+
are entitled to attend and vote at a general meeting of s%are%olders, to re"eive de"lared
dividends and to re"eive t%eir s%are of t%e residual assets, if an, if t%e "or0oration is 1an+ru0t*
2%e issuers of t%e "ommon sto"+ are t%e "om0anies (%i"% see+ to re"eive funds in t%e mar+et
and t%oug% are 5going 0u1li"4* 2%e issuing "ommon sto"+s and selling t%em in t%e mar+et
ena1les t%e "om0an to raise additional e=uit "a0ital more easil (%en using ot%er alternative
sour"es* 2%us man "om0anies are issuing t%eir "ommon sto"+s (%i"% are traded in finan"ial
mar+ets and investors %ave (ide 0ossi1ilities for "%oosing t%is t0e of se"urities for t%e
investment*
Speculative investment vehicles follo(ing t%e term 5s0e"ulation4 "ould 1e defined as
investments (it% a %ig% ris+ and %ig% investment return* Fsing t%ese investment ve%i"les
s0e"ulators tr to 1u lo( and to sell %ig%, t%eir 0rimar "on"ern is (it% anti"i0ating and 0rofiting
from t%e e90e"ted mar+et flu"tuations* 2%e onl gain from su"% investments is t%e 0ositive
differen"e 1et(een selling and 0ur"%asing 0ri"es* Af "ourse, using s%ort#term investment
strategies investors "an use for s0e"ulations ot%er investment ve%i"les, su"% as "ommon sto"+,
1ut %ere (e tr to a""entuate t%e s0e"ifi" t0es of investments (%i"% are more ris+ t%an ot%er
investment ve%i"les 1e"ause of t%eir nature related (it% more un"ertaint a1out t%e "%anges
influen"ing t%e t%eir 0ri"e in t%e future*
'peculative investent vehicles "ould 1e 0resented 1 t%ese different ve%i"les:
C A0tions>
C Futures>
C 'ommodities, traded on t%e e9"%ange 6"offee, grain metals, ot%er "ommodities7>
(ptions are t%e derivative financial instruents* An o0tions "ontra"t gives t%e o(ner of t%e
"ontra"t t%e rig%t, 1ut not t%e o1ligation, to 1u or to sell a finan"ial asset at a s0e"ified 0ri"e
from or to anot%er 0art* 2%e 1uer of t%e "ontra"t must 0a a fee 6o0tion 0ri"e7 for t%e seller*
2%ere is a 1ig un"ertaint a1out if t%e 1uer of t%e o0tion (ill ta+e t%e advantage of it and (%at
o0tion 0ri"e (ould 1e relevant, as it de0ends not onl on demand and su00l in t%e o0tions
mar+et, 1ut on t%e "%anges in t%e ot%er mar+et (%ere t%e finan"ial asset in"luded in t%e o0tion
"ontra"t are traded* 2%oug%, t%e o0tion is a ris+ finan"ial instrument for t%ose investors (%o
use it for s0e"ulations instead of %edging*
)utures are t%e ot%er t0e of derivatives* A future "ontra"t is an agreement 1et(een t(o 0arties
t%an t%e agree tom transa"t (it% t%e res0e"t to some finan"ial asset at a 0redetermined 0ri"e
at a s0e"ified future date* Ane 0art agree to 1u t%e finan"ial asset, t%e ot%er agrees to sell t%e
finan"ial asset* It is ver im0ortant, t%at in futures "ontra"t "ase 1ot% 0arties are o1ligated to
0erform and neit%er 0art "%arges t%e fee*
2%ere are t(o t0es of 0eo0le (%o deal (it% o0tions 6and futures7 "ontra"ts: s0e"ulators and
%edgers* $0e"ulators 1u and sell futures for t%e sole 0ur0ose of ma+ing a 0rofit 1 "losing out
t%eir 0ositions at a 0ri"e t%at is 1etter t%an t%e initial 0ri"e* $u"% 0eo0le neit%er 0rodu"e nor use
t%e asset in t%e ordinar "ourse of 1usiness* In "ontrar, %edgers 1u and sell futures to offset
an ot%er(ise ris+ 0osition in t%e mar+et* 2ransa"tions using derivatives instruments are not
limited to finan"ial assets* 2%ere are derivatives, involving different "ommodities 6"offee, grain,
0re"ious metals, and ot%er "ommodities7* But in t%is "ourse t%e target is on derivatives (%ere
underling asset is a finan"ial asset*
Other investment tools:
C Garious t0es of investment funds>
C Investment life insuran"e>
C Pension funds>
C &edge funds*
Investent copanies* investent funds+ 2%e re"eive mone from investors (it% t%e "ommon
o1;e"tive of 0ooling t%e funds and t%en investing t%em in se"urities a""ording to a stated set of
investment o1;e"tives* 2(o t0es of funds:
C o0en#end funds 6mutual funds7 ,
C "losed#end funds 6trusts7*
(pen%end funds %ave no 0re#determined amount of sto"+s outstanding and t%e "an 1u 1a"+
or issue ne( s%ares at an 0oint* Pri"e of t%e s%are is not determined 1 demand, 1ut 1 an
estimate of t%e "urrent mar+et value of t%e fund8s net assets 0er s%are 6NAG7 and a
"ommission* !losed%end funds are 0u1li"l traded investment "om0anies t%at %ave issued a
s0e"ified num1er of s%ares and "an onl issue additional s%ares t%roug% a ne( 0u1li" issue*
Pri"ing of "losed#end funds is different from t%e 0ri"ing of o0en#end funds: t%e mar+et 0ri"e "an
differ from t%e NAG* Insurance !opanies are in t%e 1usiness of assuming t%e ris+s of adverse
events 6su"% as fires, a""idents, et"*7 in e9"%ange for a flo( of insuran"e 0remiums* Insuran"e
"om0anies are investing t%e a""umulated funds in se"urities 6treasur 1onds, "or0orate sto"+s
and 1onds7, real estate* 2%ree t0es of Insuran"e 'om0anies: life insuran"e> non#life insuran"e
6also +no(n as 0ro0ert#"asualt insuran"e7 and reinsuran"e* Huring re"ent ears investent
life insurance 1e"ame ver 0o0ular investment alternative for individual investors, 1e"ause t%is
%1rid investment 0rodu"t allo(s to 1u t%e life insuran"e 0oli" toget%er (it% 0ossi1ilit to
invest a""umulated life insuran"e 0aments or lum0 sum for a long time sele"ting investment
0rogram relevant to investor3s future e90e"tations* &ension )unds are an asset 0ools t%at
a""umulates over an em0loee8s (or+ing ears and 0as retirement 1enefits during t%e
em0loee8s non(or+ing ears* Pension funds are investing t%e funds a""ording to a stated set
of investment o1;e"tives in se"urities 6treasur 1onds, "or0orate sto"+s and 1onds7, real estate*
,edge funds are unregulated 0rivate investment 0artners%i0s, limited to institutions and %ig%#
net#(ort% individuals, (%i"% see+ to e90loit various mar+et o00ortunities and t%ere1 to earn
larger returns t%an are ordinaril availa1le* 2%e re=uire a su1stantial initial investment from
investors and usuall %ave some restri"tions on %o( =ui"+l investor "an (it%dra( t%eir funds*
&edge funds ta+e "on"entrated s0e"ulative 0ositions and "an 1e ver ris+* It "ould 1e noted
t%at originall, t%e term 5%edge4 made some sense (%en a00lied to t%ese funds* 2%e (ould 1
"om1ining different t0es of investments, in"luding derivatives, tr to %edge ris+ (%ile see+ing
%ig%er return* But toda t%e (ord 5%edge8 is misa00lied to t%ese funds 1e"ause t%e generall
ta+e an aggressive strategies investing in sto"+, 1ond and ot%er finan"ial mar+ets around t%e
(orld and t%eir level of ris+ is %ig%*
1.3.2. Financial marets
Finan"ial mar+ets are t%e ot%er im0ortant "om0onent of investment environment* Finan"ial
mar+ets are designed to allo( "or0orations and governments to raise ne( funds and to allo(
investors to e9e"ute t%eir 1uing and selling orders* In finan"ial mar+ets funds are "%anneled
from t%ose (it% t%e sur0lus, (%o 1u se"urities, to t%ose, (it% s%ortage, (%o issue ne(
se"urities or sell e9isting se"urities* A finan"ial mar+et "an 1e seen as a set of arrangements
t%at allo(s trading among its 0arti"i0ants*
Finan"ial mar+et 0rovides t%ree im0ortant e"onomi" fun"tions:
1* Finan"ial mar+et determines t%e 0ri"es of assets traded t%roug% t%e intera"tions 1et(een
1uers and sellers>
2* Finan"ial mar+et 0rovides a li=uidit of t%e finan"ial assets>
3* Finan"ial mar+et redu"es t%e "ost of transa"tions 1 redu"ing e90li"it "osts, su"% as mone
s0ent to advertise t%e desire to 1u or to sell a finan"ial asset*
Finan"ial mar+ets "ould 1e "lassified on t%e 1ases of t%ose "%ara"teristi"s:
C $e=uen"e of transa"tions for selling and 1uing se"urities>
C 2erm of "ir"ulation of finan"ial assets traded in t%e mar+et>
C D"onomi" nature of se"urities, traded in t%e mar+et>
C From t%e 0ers0e"tive of a given "ountr*
B se=uen"e of transa"tions for selling and 1uing se"urities:
Primar mar+et
$e"ondar mar+et
All se"urities are first traded in t%e 0rimar mar+et, and t%e se"ondar mar+et 0rovides li=uidit
for t%ese se"urities*
&riary arket is (%ere "or0orate and government entities "an raise "a0ital
and (%ere t%e first transa"tions (it% t%e ne( issued se"urities are 0erformed* If a "om0an8s
s%are is traded in t%e 0rimar mar+et for t%e first time t%is is referred to as an initial 0u1li"
offering 6IPA7*
Investment 1an+s 0la an im0ortant role in t%e 0rimar mar+et:
C Fsuall %andle issues in t%e 0rimar mar+et>
C Among ot%er t%ings, a"t as under(riter of a ne( issue, guaranteeing t%e 0ro"eeds to t%e
issuer*
'econdary arket # (%ere 0reviousl issued se"urities are traded among investors* Ienerall,
individual investors do not %ave a""ess to se"ondar mar+ets* 2%e use se"urit 1ro+ers to a"t
as intermediaries for t%em* 2%e 1ro+er delivers an orders re"eived form investors in se"urities to
a mar+et 0la"e, (%ere t%ese orders are e9e"uted* Finall, "learing and settlement 0ro"esses
ensure t%at 1ot% sides to t%ese
transa"tions %onor t%eir "ommitment* 20es of 1ro+ers:
C His"ount 1ro+er, (%o e9e"utes onl trades in t%e se"ondar mar+et>
C Full servi"e 1ro+er, (%o 0rovides a (ide range of additional servi"es to "lients>
C Anline 1ro+er is a 1ro+erage firm t%at allo(s investors to e9e"ute trades ele"troni"all using
Internet*
20es of se"ondar mar+et 0la"es:
C Argani<ed se"urit e9"%anges>
C Aver#t%e#"ounter mar+ets>
C Alternative trading sstem*
-n organi.ed security e/change 0rovides t%e fa"ilit for t%e mem1ers to trade se"urities, and
onl e9"%ange mem1ers ma trade t%ere* 2%e mem1ers in"lude 1ro+erage firms, (%i"% offer
t%eir servi"es to individual investors, "%arging "ommissions for e9e"uting trades on t%eir 1e%alf*
At%er e9"%ange mem1ers 1 or sell for t%eir o(n a""ount, fun"tioning as dealers or mar+et
ma+ers (%o set 0ri"es at (%i"% t%e are (illing to 1u and sell for t%eir o(n a""ount*
D9"%anges 0la ver im0ortant role in t%e modern e"onomies 1 0erforming t%e follo(ing tas+s:
C $u0ervision of trading to ensure fairness and effi"ien">
C 2%e aut%ori<ation and regulation of mar+et 0arti"i0ants su"% as 1ro+ers and mar+et ma+ers>
C 'reation of an environment in (%i"% se"urities8 0ri"es are formed effi"ientl and (it%out
distortion* 2%is re=uires not onl regulation of an orders and transa"tion "osts 1ut also a li=uid
mar+et in (%i"% t%ere are man 1uers and sellers, allo(ing investors to 1u or to sell t%eir
se"urities =ui"+l>
C Argani<ation of t%e "learing and settlement of transa"tions>
C 2%e regulation of %e admission of "om0anies to 1e listed on t%e e9"%ange and t%e regulation
of "om0anies (%o are listed on t%e e9"%ange>
C 2%e dissemination of information 6trading data, 0ri"es and announ"ements of "om0anies listed
on t%e e9"%ange7* Investors are more (illing to trade if 0rom0t and "om0lete information a1out
trades and 0ri"es in t%e mar+et is availa1le*
The over%the%counter ((T!) arket is not a formal e9"%ange* It is organi<ed net(or+ of 1ro+ers
and dealers (%o negotiate sales of se"urities* 2%ere are no mem1ers%i0 re=uirements and
man 1ro+ers register as dealers on t%e A2'* At t%e same time t%ere are no listing
re=uirements and t%ousands of se"urities are traded in t%e A2' mar+et* A2' sto"+s are usuall
"onsidered as ver ris+ 1e"ause t%e are t%e sto"+s t%at are not "onsidered large or sta1le
enoug% to trade on t%e ma;or e9"%ange* -n alternative trading syste (-T') is an ele"troni"
trading me"%anism develo0ed inde0endentl from t%e esta1lis%ed mar+et 0la"es ? se"urit
e9"%anges ? and designed to mat"% 1uers and sellers of se"urities on an agen" 1asis* 2%e
1ro+ers (%o use A2$ are a"ting on 1e%alf of t%eir "lients and do not trade on t%eir o(n a""ount*
2%e distin"t advantages of A2$ in "om0arison (it% traditional mar+ets are "ost savings of
transa"tions, t%e s%ort time of e9e"ution of transa"tions for li=uid se"urities, e9tended %ours for
trading and anonmit, often im0ortant for investors, trading large amounts* B term of
"ir"ulation of finan"ial assets traded in t%e mar+et:
J Mone mar+et>
J 'a0ital mar+et
Money arket % in (%i"% onl s%ort#term finan"ial instruments are traded*
!apital arket # in (%i"% onl long#term finan"ial instruments are traded*
2%e "a0ital mar+ets allo( firms, governments to finan"e s0ending in e9"ess of t%eir "urrent
in"omes*
Table 1.2.
B e"onomi" nature of se"urities, traded in t%e mar+et:
D=uit mar+et or sto"+ mar+et>
'ommon sto"+ mar+et>
Fi9ed#in"ome mar+et>
He1t mar+et>
Herivatives mar+et*
From t%e 0ers0e"tive of a given "ountr finan"ial mar+ets are:
# Internal or national mar+et>
# D9ternal or international mar+et*
The internal arket "an 1e s0lit into t(o fra"tions: domesti" mar+et and foreign mar+et*
Doestic arket is (%ere t%e se"urities issued 1 domesti" issuers 6"om0anies, Iovernment7
are traded* - country0s foreign arket is (%ere t%e se"urities issued 1 foreign entities are
traded* The e/ternal arket also is "alled the international arket in"ludes t%e se"urities (%i"%
are issued at t%e same time to t%e investors in several "ountries and t%e are issued outside t%e
;urisdi"tion of an single "ountr 6for e9am0le, offs%ore mar+et7* Ilo1ali<ation and integration
0ro"esses in"lude t%e integration of finan"ial mar+ets into an international finan"ial mar+et*
Be"ause of t%e glo1ali<ation of finan"ial mar+ets, 0otential issuers and investors in an "ountr
1e"ome not limited to t%eir domesti" finan"ial mar+et*
1.!. Investment management "rocess
Investment management 0ro"ess is t%e 0ro"ess of managing mone or funds* 2%e investment
management 0ro"ess des"ri1es %o( an investor s%ould go a1out ma+ing de"isions* Investment
management 0ro"ess "an 1e dis"losed 1 five-step procedure,(%i"% in"ludes follo(ing
stages:
1* $etting of investment 0oli"*
2* Analsis and evaluation of investment ve%i"les*
3* Formation of diversified investment 0ortfolio*
.* Portfolio revision
5* Measurement and evaluation of 0ortfolio 0erforman"e*
Setting of investment policy is t%e first and ver im0ortant ste0 in investment management
0ro"ess* Investent policy in"ludes setting of investment o1;e"tives* 2%e investment 0oli"
s%ould %ave t%e s0e"ifi" o1;e"tives regarding t%e investment return re=uirement and ris+
toleran"e of t%e investor* For e9am0le, t%e investment 0oli" ma define t%at t%e target of t%e
investment average return s%ould 1e 15 K and s%ould avoid more t%an 10 K losses* Identifing
investor8s toleran"e for ris+ is t%e most im0ortant o1;e"tive, 1e"ause it is o1vious t%at ever
investor (ould li+e to earn t%e %ig%est return 0ossi1le* But 1e"ause t%ere is a 0ositive
relations%i0 1et(een ris+ and return, it is not a00ro0riate for an investor to set %is@ %er
investment o1;e"tives as ;ust 5to ma+e a lot of mone4* Investment o1;e"tives s%ould 1e stated
in terms of 1ot% ris+ and return* 2%e investment 0oli" s%ould also state ot%er im0ortant
"onstrains (%i"% "ould influen"e t%e investment management* 'onstrains "an in"lude an
li=uidit needs for t%e investor, 0ro;e"ted investment %ori<on, as (ell as ot%er uni=ue needs and
0referen"es of investor* 2%e investent hori.on is t%e 0eriod of time for investments* Pro;e"ted
time %ori<on ma 1e s%ort, long or even indefinite* $etting of investment o1;e"tives for individual
investors is 1ased on t%e assessment of t%eir "urrent and future finan"ial o1;e"tives* 2%e
re=uired rate of return for investment de0ends on (%at sum toda "an 1e invested and %o(
mu"% investor needs to %ave at t%e end of t%e investment %ori<on* Wis%ing to earn %ig%er
in"ome on %is @ %er investments investor must assess t%e level of ris+ %e @s%e s%ould ta+e and
to de"ide if it is relevant for %im or not* 2%e investment 0oli" "an in"lude t%e ta9 status of t%e
investor* 2%is stage of investment management "on"ludes (it% t%e identifi"ation of t%e 0otential
"ategories of finan"ial assets for in"lusion in t%e investment 0ortfolio*
2%e identifi"ation of t%e 0otential "ategories is 1ased on t%e investment o1;e"tives, amount of
investa1le funds, investment %ori<on and ta9 status of t%e investor*
Analysis and evaluation of investment vehicles W%en t%e investment 0oli" is set u0,
investor8s o1;e"tives defined and t%e 0otential "ategories of finan"ial assets for in"lusion in t%e
investment 0ortfolio identified, t%e availa1le investment t0es "an 1e anal<ed* 2%is ste0
involves e9amining several relevant t0es of investment ve%i"les and t%e individual ve%i"les
inside t%ese grou0s* For e9am0le, if t%e "ommon sto"+ (as identified as investment ve%i"le
relevant for investor, t%e analsis (ill 1e "on"entrated to t%e "ommon sto"+ as an investment*
2%e one 0ur0ose of su"% analsis and evaluation is to identif t%ose investment ve%i"les t%at
"urrentl a00ear to 1e mis0ri"ed* 2%ere are man different a00roa"%es %o( to ma+e su"%
analsis* Most fre=uentl t(o forms of analsis are used: te"%ni"al analsis and fundamental
analsis* Technical analysis involves t%e analsis of mar+et 0ri"es in an attem0t to 0redi"t future
0ri"e movements for t%e 0arti"ular finan"ial asset traded on t%e mar+et* 2%is analsis e9amines
t%e trends of %istori"al 0ri"es and is 1ased on t%e assum0tion t%at t%ese trends or 0atterns
re0eat t%emselves in t%e future* Fundamental analsis in its sim0lest form is fo"used on t%e
evaluation of intrinsi" value of t%e finan"ial asset* 2%is valuation is 1ased on t%e assum0tion t%at
intrinsi" value is t%e 0resent value of future flo(s from 0arti"ular investment* B "om0arison of
t%e intrinsi" value and mar+et value of t%e finan"ial assets t%ose (%i"% are under 0ri"ed or
over0ri"ed "an 1e identified*
Formation of diversified investment portfolio is t%e ne9t ste0 in investment management
0ro"ess* Investment portfolio is t%e set of investment ve%i"les, formed 1 t%e investor see+ing
to reali<e its8 defined investment o1;e"tives* In t%e stage of 0ortfolio formation t%e issues of
sele"tivit, timing and diversifi"ation need to 1e addressed 1 t%e investor* 'electivity refers to
mi"ro fore"asting and fo"uses on fore"asting 0ri"e movements of individual assets* Tiing
involves ma"ro fore"asting of 0ri"e movements of 0arti"ular t0e of finan"ial asset relative to
fi9ed#in"ome se"urities in general* !iversification involves forming t%e investor8s 0ortfolio
forde"reasing or limiting ris+ of investment* 2 te"%ni=ues of diversifi"ation:
C rando diversification1 (%en several availa1le finan"ial assets are 0ut to
t%e 0ortfolio at random>
C ob2ective diversification (%en finan"ial assets are sele"ted to t%e 0ortfolio follo(ing investment
o1;e"tives and using a00ro0riate te"%ni=ues for analsis and evaluation of ea"% finan"ial asset*
Investment management t%eor is fo"used on issues of o1;e"tive 0ortfolio diversifi"ation and
0rofessional investors follo( settled investment o1;e"tives t%en "onstru"ting and managing t%eir
0ortfolios*
"ortfolio revision 2%is ste0 of t%e investment management 0ro"ess "on"erns t%e 0eriodi"
revision of t%e t%ree 0revious stages* 2%is is ne"essar, 1e"ause over time investor (it% long#
term investment %ori<on ma "%ange %is @ %er investment o1;e"tives and t%is, in turn means t%at
"urrentl %eld investor8s 0ortfolio ma no longer 1e o0timal and even "ontradi"t (it% t%e ne(
settled investment o1;e"tives* Investor s%ould form t%e ne( 0ortfolio 1 selling some assets in
%is 0ortfolio and 1uing t%e ot%ers t%at are not "urrentl %eld* It "ould 1e t%e ot%er reasons for
revising a given 0ortfolio: over time t%e 0ri"es of t%e assets "%ange, meaning t%at some assets
t%at (ere attra"tive at one time ma 1e no longer 1e so* 2%us investor s%ould sell one asset ant
1u t%e ot%er more attra"tive in t%is time a""ording to %is@ %er evaluation* 2%e de"isions to
0erform "%anges in revising 0ortfolio de0end, u0on ot%er t%ings, in t%e transa"tion "osts
in"urred in ma+ing t%ese "%anges* For institutional investors 0ortfolio revision is "ontinuing and
ver im0ortant 0art of t%eir a"tivit* But individual investor managing 0ortfolio must 0erform
0ortfolio revision 0eriodi"all as (ell* Periodi" reevaluation of t%e investment o1;e"tives and
0ortfolios 1ased on t%em is ne"essar, 1e"ause finan"ial mar+ets "%ange, ta9 la(s and se"urit
regulations "%ange, and ot%er events alter stated investment goals*
#easurement and evaluation of portfolio performance 2%is t%e last ste0 in investment
management 0ro"ess involves determining 0eriodi"all %o( t%e 0ortfolio 0erformed, in terms of
not onl t%e return earned, 1ut also t%e ris+ of t%e 0ortfolio* For evaluation of 0ortfolio
0erforman"e a00ro0riate measures of return and ris+ and 1en"%mar+s are needed* -
benchark is t%e 0erforman"e of 0redetermined set
assets, o1tained for "om0arison 0ur0oses* 2%e 1en"%mar+ ma 1e a 0o0ular inde9 of
a00ro0riate assets ? sto"+ inde9, 1ond inde9* 2%e 1en"%mar+s are (idel used 1 institutional
investors evaluating t%e 0erforman"e of t%eir 0ortfolios* It is im0ortant to 0oint out t%at
investment management 0ro"ess is "ontinuing 0ro"ess influen"ed 1 "%anges in investment
environment and "%anges in investor8s attitudes as (ell* Mar+et glo1ali<ation offers investors
ne( 0ossi1ilities, 1ut at t%e same time investment management 1e"ome more and more
"om0li"ated (it% gro(ing un"ertaint*