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September 6, 2022 Assignment - Investment

1. What is an investment?

An asset that eventually generates value above its initial cost is considered to be an
investment. Almost any asset, including intangible assets like education, can be considered
an investment. Acquiring stocks or bonds is considered investing in the framework of the
stock market. These securities are made to give investors future value greater than their
initial investment. Other assets can also be invested. Purchasing a cheap property,
remodelling it to improve its value, and then reselling or leasing it for more than what you
paid for it would be an example of investing in real estate.

2. What are the types of investment?

● Stocks - It is a type of security that encompasses the equity stake of the owner in the
listed corporation and is often sold on stock markets. Regardless whether you gain or
incur losses on a stock varies on the performance of the corporation, the kind of
stock you acquire, the condition of the market as a whole, and other variables.
● Bonds - These are securitized, tradable units of debt securities that have been issued
by corporations. It is a borrowing that a shareholder offers to a corporation, the
administration, a government organization, or some entity in return for interest
payments rendered over a predetermined period and payback of the principle on the
maturity period of the bond.
● Mutual Funds - It is a financial instrument that accumulates funds from numerous
investors and allocates them in accordance with predetermined investment and
financial goals. Furthermore, it generates money by providing investors stake in its
own shares.
● Exchange-Traded Funds (ETFs) - It is a collective equity investment that provides
investors a stake in an efficiently distributed and administered investment portfolio.
Conversely, ETF shares exchange like equities on stock markets and can be
acquired or exchanged at price changes during the negotiating period, in contrast to
mutual funds.
● Certificate of Deposits (CDs) - The investment risk in this type of investment is quite
low. You loan money to a bank for a specified period of time in a particular amount,
then you obtain your investment back along with a predetermined rate of interest
once that time threshold is over. Thus, y our interest rate increases as the loan term
lengthen.
● Options - These are transactions that grant the buyer the ability, although not the
responsibility, to acquire or sell a commodity within a set timeframe and at a
guaranteed price, for instance, an exchange-traded fund or stock.
● Annuities - It is an accord you enter into with an insurance provider in which the latter
guarantees to pay you on a periodic basis, either promptly or at a later date.
● Retirement - It is a systematic strategy established and followed by an individual for
saving money for their forthcoming retirement.
 ● Saving for Education - An investment that enables the accountholder to establish an
investment account in order to accumulate funds for the account beneficiary's
primary or secondary school fees or another eligible higher education expenditure.
● Alternative and Complex Products - They commonly encourage investment with
distinctive features and higher yields than those provided by traditional investments,
although being both more complex and riskier than regular investments.
● Cryptocurrencies - These are comparatively recent forms of investment. Moreover, it
is a symbolic and digital representation of data that has been encoded and
encrypted.
● Commodity Futures - These are transactions to purchase or sell a certain amount of
a commodity at a predetermined price at a future point in time.
● Security Futures - It is a formally enforceable contractual agreement between two
parties to purchase or sell a certain amount of shares of a security or a rigid
securities exchange at a given price on a future point.
● Insurance - It is a guarantee under which an insurer safeguards contestations losses
incurred by particular cataclysms or vulnerabilities.

3. Who are the suppliers and demanders of funds?

Individuals, businesses, and the government are important participants in the

financial system, or rather suppliers and demanders of funds, businesses, and
governments.

● Individuals - The net source of funds for financial institutions is people as a whole
(they save more than they borrow). Some others need loans to fund their homes,
cars, and other assets. As a result, the individuals are usually the net financiers.
● Businesses - Business organizations are net fund borrowers. Usually, they borrow
more than they put aside. Borrowings for investments in the production of goods and
services are to blame.
● Government - Typically, governments are net demanders of funds. Usually, they
borrow more than they put aside. This is due to the requirement for funding federal,
state, and municipal initiatives and operations.

4. What are the types of investors?

● Personal Investors - These are their close friends, relatives, or acquaintances since
business owners rely on them to accommodate them by making good investment
decisions, particularly at the outset.
● Angel Investors - They are the ones that invest in fledgling businesses or new
business owners. Subsequently, they are mostly concerned with fostering the growth
of businesses in their early phases rather than attempting to generate profits off of it.
● Venture Capitalist - It is an investor who provides funding to businesses that have the
potential for long-term success.
● Peer-to-peer Lenders - They are entities or individuals who lend capital to proprietors
of small businesses.
● Incubators and Accelerators - Accelerators enable an existing business to grow and
thrive, whereas incubators seek to grow innovative solutions into a viable business
strategy.
 ● Banks and Financial Institutes - These are licensed institutions that grant loans as
well as acquire savings and checking accounts.
● Corporate Investors - It is an established and incorporated company that decides to
invest in a certain company.

5. What is the role of short-term vehicles?

If the terms are broken down, the role of short-term investment vehicles can be
clearly understood. Any process through which individuals or firms can invest and, hopefully,
see their money increase is referred to as an "investment vehicle" in the role of short-term
investment vehicles. A short-term investment is often known as a marketable security or a
temporary investment. It is a debt or equity security that is planned to be liquidated or
converted into cash in less time than a year.

Thus, a short-term investment vehicle is a type of investment that typically matures

soon and is generally liquid. An investment's liquidity refers to its ability to be swiftly and with
little to no value loss converted into cash. It follows that the short-term investment vehicle's
role is to make the assets liquid. Liquidity is mostly required for an emergency cash reserve
or to save for a specific short-term financial objective.

6. What are the advantages and disadvantages of short-term vehicles?

Advantages:

● High liquidity - as a corollary, investors may quickly and conveniently convert assets
into cash, that is continuously accessible for use.
● Low default risks - this lowers the chance of default by companies or individuals on
the required payments on their debt obligations.

Disadvantages:

● Low rates of return - due to the comparatively low risks associated, they often have
low rates of return.
● Loss of potential purchasing power due to inflation - relative to inflation over the
investment period, the earnings from a short-term investment might not have the
same purchasing power they possessed.

7. What are the uses of short-term vehicle?

● Savings - focus primarily on security and safety rather than good and high yield
● Investment - utilized as a transient avenue while waiting for enticing long-term
investments and as part of a diversified portfolio.
References:

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