Investment is a science and art of using resources in economic activities to make profit inthe future.
The overall purpose for investing is to make money or to improve our welfare, which for our purposes can be defined as monetary wealth, both current and future.
Risk of investment is an uncertainty of return.
“Risk drives expected returns” true because the specification of a larger range of possiblereturns from an investment reflects the investor’s uncertainty regarding what the actual amountwill be. Therefore, a large range of expected returns make the investment riskier.
Fixed income refers to any type of investment that yields a regular (or fixed) return.For example, if you lend money to a borrower and the borrower has to pay interest once a month,you have been issued a fixed-income security when a company does this, it is often called a bondor corporate bank debt (although “preferred stock” is also sometimes considered to be fixedincome). Sometime people misspeak when they talk about fixed income. Bonds actually havehigher risk, while notes and bills have less risk because these are issued by government agencies.
Distinguish between a financial asset and a real asset:
Real assets: are used to produced goods and services such as land, buildings, machines,etc…
Financial assets: define the allocation of income or wealth among investors. Financialassets contribute to productive capacity of the economy indirectly, because they allow for separation of the ownership and management of the firm and facilitate the transfer of funds toenterprise with attractive investment opportunities. (Financial assets such as stock, bond, etc…)
6. - Institutional investors:
an organization which pool large sums of money and invest thosesums in companies. They include banks,insurance companies, retirement or pension funds,
hedge fundsandmutual funds. Their role in the economy is to act as highly specialized investors
on behalf of others. For instance, an ordinary person will have a pension from his employer. Theemployer gives that person's pension contributions to a fund. The fund will buy shares in acompany, or some other financial product. Funds are useful because they will hold a broad portfolioof investments in many companies. This spreads risk, so if one company fails, it will beonly a small part of the whole fund's investment. Institutional investors will have a lot of influence in the management of corporationsbecause they will be entitled to exercise the votingrights in a company. They can engage in active role incorporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large partin which companies stay solvent, and which go under. Influencing the conduct of listedcompanies, and providing them with capital are all part of the job of investment management.