Rejas, Kimberly H.

Assignment # 2
BSHM 3D

Answer the following questions in paragraph form:

1. What do you mean by investment? Why is this important for a business enterprise? (12
pts.)
2. Enumerate the key participants in the investment process. Discuss the role of each
participant. (12 pts.)
3. Define the following 4 investment vehicles and give examples for each:
a. Securities. (4 pts.)
b. Fixed-income securities (4 pts.)
c. Mutual funds (4 pts.)
d. Property (4 pts.)

ANSWER:

1. An investment is any vehicle into which funds can be placed with the
expectation that they will generate positive income and/or their value is
preserved or increased. The investment process involves the transfer of extra
funds from the business organizations to financial institutions and financial
markets. Investment involves putting in the capital today in the hope of a payoff
in the future. Investment is important for a business because it will grow your
business, you will take your business seriously, you will feel less stressed and
save time.

2. Key Participants in the Investment Process

There are three key participants in the investment process: government,
business and individuals. They can either be a demander or supplier of funds.

 Government – both local and national government need funds to finance capital
expenditures or long-term infrastructure project such as roads, schools and
hospitals. Likewise, operating costs of the government are sourced from taxes
and fee collections. Any idle cash from the government resources are placed in
short-term investments for a positive return of earnings or return of investment
(ROI). In cases where its operating costs exceed revenues or if government
receipts are not enough to cover government payments, the government resorts
to borrowing funds by issuing short-term debt securities.
 Business – most businesses require big sums of money to support operations
through short term or long-term investments. Short-term funds are used to meet
operating costs like financing inventory and accounts receivables. Long-term
needs of business are for the development of products, build plants and
 purchase equipment. Financing these needs require businesses to issue a
variety of debt and equity securities as collateral.

 Individuals – it is a common scenario for many to have financial resource in the

form of loans. Having loans, these individual supply funds to help meet the needs
of both government and businesses through deposits in saving accounts,
purchases of debt or equity securities, buy insurance or various types of
property.

3. Investment Vehicles
Securities are investments that represent evidence of debt or ownership interest
in a business or other assets. Examples are bonds and stocks. Investment in
securities can be either a debt or an equity interest. Debt securities are funds
borrowed in exchange for interest income and a promise to repay the loan at a
given future date. These securities are similar to bank loans. An investor obtains
an equity interest in a business by buying securities known as stocks, either
common or preferred or convertible preferred.
Fixed-Income Securities are commonly known as bonds, preferred stocks, and
convertible securities. These groups of investment vehicles offer a fixed periodic
return and are quite popular investments during periods of high-interest rates
since investors like to have guaranteed high returns.
Mutual funds is the commonly used name for an investment company, which
pools the money of many investors into a large fund. The fund is managed by a
financial professional, called an investment adviser or fund manager who invests
this large accumulation of funds into a large portfolio of securities, such as debt
and equity securities, and other financial instruments.
Property is Investments in property can either be in real property or tangible
personal property.