NAME: Tantri Widya SMiddle Test

NIM: 125030207111100Investment Management

INVESTMENT PROCESS

Investment is someone who has kind money to invest they money. The Return is the reward for owning an investment such as Current income and Increase in value. financial assets are important to the functioning of a developed economy. Three types of financial assets: Fixed income or debt, Common stock or equity and Derivative securities. Investment assets can be categorized into broad asset classes, such as stocks, bonds, real estate, commodities, and so on. Investors make two types of decisions in constructing their portfolios. The asset allocation decision is the choice among these broad asset classes, while the security selection decision is the choice of which particular securities to hold within each asset class. Types of Investments: Securities or Property; Securities, Real Property, Tangible Personal Property. Direct: investor directly acquires a claim; Indirect: investor owns part of a portfolio. Debt, Equity or Derivative Securities: Debt: investor lends funds in exchange for interest income and repayment of loan in future (bonds); Equity: represents ongoing ownership in a business or property (common stocks); Derivative Securities: neither debt nor equity; derive value from an underlying asset (options).

MARKET AND INSTRUMENTS.

Financial markets are traditionally segmented into money markets and capital markets. Money market instruments include short-term, marketable, liquid, low-risk debt securities. Capital markets, in contrast, include longer term and riskier securities in the capital market are much more diverse than those found within the money market. Money market mutual funds allow individuals to access the money market. U.S. Treasury bills are the most marketable of all money market instruments. A certificate of deposit, or CD, is a time deposit with a bank. Commercial paper is considered to be a fairly safe asset, because a firms condition presumably can be monitored and predicted over a term as short as 1 month. Bankers Acceptances is an order to a bank by a customer to pay x money on a future date. Fed Funds is very short-term loans between banks. The majority of debt is issued in support of farm credit and home mortgages. Some of these agencies are government owned, and therefore can be viewed as branches of the U.S. government. Common stock is an ownership share in a corporation and limited liability. Preferred stock usually pays fixed dividends for the life of the firm and Perpetuity. A derivative is a security that derives its value from the values of another asset.

HOW SECURITIES ARE TRADED

Firms issue securities to raise the capital necessary to finance their investments. Investment bankers market these securities to the public on the primary market. Investment bankers generally act as underwriters who purchase the securities from the firm and resell them to the public at a markup. Market have a two is primary and secondary market. Primary market is first securities are issued and Secondary Market is existing securities traded by investors. Private Placement : This refers to an issue that usually is sold to one or a few institutional investors and is generally held to maturity. Issues securities are traded on the secondary market, organized stock exchanges, the over the counter market and national market system. Short-selling is the practice of selling securities that the seller does not own. The short-seller borrows the securities sold through a broker and may be required to cover the short position at any time on demand. Block Transactions are large transactions in which at least 10,000 shares of stocks are bought or sold. Block Houses are brokerage firms that specialize in matching block buyers and sellers. Securities trading is the practice of selling securities that the seller does not own. The short sale allows investors to profit from a decline in securitys price.

HISTORY OF INTEREST RATES AND RISK PREMIUMS.

Risk premium is added a risk. Risk Premium will result in an additional return. The risk premium has to be large enough to compensate a risk-averse investor for the risk of the investment. A fair game is a risky prospect that has a zero risk premium. It will not be undertaken by a risk averse investor. Determinants Of The Level Of Interest Rates : Interest rates and their future expected values are the important factors which effect our investment decisions. Factors that effect the Interest Rates : However forecasting interest rates is not easy. We have to understand the factors that effect the rates and determine the level of interest rates: The supply of funds from savers, primarily households, The demand of funds from businesses to invest in plant and equipment, The governments net supply and demand of funds, and the Equilibrium Real Rate of Interest Rate, Supply, demand of funds and government actions determine the level of interest rates. The supply curve slops upward because the higher the real interest rate, the greater the supply of household savings. The demand curve slops downward because the lower the int. rate, the more the businesses will want to make investments in capital goods. Equilibrium is the point at which demand and supply curve intersect, point E. Government can shift these demand and supply curves either to the right or to the left through fiscal and monetary policies.Taxes and the Real Rate of Interest : Tax liabilities are based on nominal income and the tax rate determined by the investors tax bracket.