Q.No1 Explain the term investing and investment with examples?

Investment is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument.[1] It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. An investment involves the choice by an individual or an organization, such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such asproperty, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.[2] Investment comes with the risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky with respect to the investment owner because the possibility of losing money is not within the owner's control. The difference between speculation and investment can be subtle. It depends on the investment owner's mind whether the purpose is for lending the resource to someone else for economic purpose or not.[3] In the case of investment, rather than store the good produced or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits. In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in

equipment used in the business. Investing activities also include the sale of long-term investments and the sale of long-term assets that had been used in the business. and the fourth describes an investor in a share of the business. such as money that is put into a bank or the market. The word originates in the Latin "vestis". Economists refer to a real investment (such as a machine or a house). which may then be used to buy a real asset. Investing activities are identified with changes in a corporation’s long-term assets.the hope of a profitable sale. or equivalently a deposit is made in a bank. and accounts for that asset by recording an equivalent liability. the value of the asset and liability also change. An asset is usually purchased. The third case describes a lender. The money received . meaning garment. The term "investment" is used differently in economics and in finance. Investing activities are reported in a separate section of the financial statement Statement of Cash Flows (SCF)—also referred to as the cash flow statement Examples of investing activities include the acquisition (purchase) of longterm investments.[4] The basic meaning of the term being an asset held to have some recurring or capital gains. and so on. because the acquisition will use (will reduce) cash. and refers to the act of putting things (money or other claims to resources) into others' pockets. a building used in the business. As time passes. The proceeds (money received) from the sale of long-term assets will also be reported in the investing activities section of the cash flow statement. in hopes of getting a futurereturn or interest from it. It is an asset that is expected to give returns without any work on the asset per se. the consumer obtains a durable asset or investment. and both prices and interest rates change. while financial economists refer to a financial asset. In each case. The purchase of these long-term assets is shown as a negative amount in the investing activities section of the SCF.

and precious items. investment is the utilization of resources in order to increase income or production output in the future. http://en. real properties. On the other hand. . bullion. the different meanings of "investment" are more alike than dissimilar. it carries slightly different meanings to different industrial sectors. since the effect on cash is positive.com/investing-activities-cash-flow-statement/ The word "investment" can be defined in many ways according to different theories and principles.will appear as a positive amount. However.accountingcoach. The sale is providing or increasing the company’s cash. investment is the application of money for earning more money. investment refers to any physical or tangible asset. According to economics. Investment also means savings or savings made through delayed consumption. Generally.org/wiki/Investment http://blog.wikipedia. for example. bonds. a building or machinery and equipment. According to economists. An amount deposited into a bank or machinery that is purchased in anticipation of earning income in the long run are both examples of investments. for example stocks. It is a term that can be used in a number of contexts. Although there is a general broad definition to the term investment. finance professionals define an investment as money utilized for buying financial assets.

.mapsofworld. the practice of investment refers to the buying of a financial product or any valued item with an anticipation that positive returns will be received in the future. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth . in expectation that this will help the business to prosper in the long run.According to finance. investment is that activity in which a manufacturer buys a physical asset.g. (not necessarily) while the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investors may be institutions (insurance companies. for example. mutual funds or exchange-traded funds). The most important feature of financial investments is that they carry high market liquidity. bonds and other securities) and assets (e. The term asset management is often used to refer to the investment management of collective investments. The method used for evaluating the value of a financial investment is known as valuation. According to business theories.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.html Investment management is the professional management of various securities (shares. corporations etc. real estate) in order to meet specified investment goals for the benefit of the investors.com/investment/meaning. pension funds. stock or production equipment.g. http://finance.

Typically. dollars. While negotiable CDs may not be cashed in before the date of maturity. plan implementation and ongoing monitoring of investments. When one opens a CD. stock selection.No 2 Discuss the difference between a negotiable certificate of deposit and certificate of deposit in relation with non-marketable securities? What is a Negotiable Certificate of Deposit? • A negotiable certificate of deposit (CD) is a financial savings vehicle offered by a financial institution like a bank that usually requires a high minimum deposit of at least $100. asset selection. B Part Critically explain the broad two-step process involved in making investment decisions? Q. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Some negotiable CDs may have longer terms. The provision of 'investment management services' includes elements of financial statement analysis. and offer higher interest rates. Investment management is a large and important global industry in its own right responsible for caretaking of trillionsof yuan. Large Savers Have the Power to Negotiate . euro. Similar to normal certificates of deposits. there is an active secondary market for negotiable CDs where the certificates can be sold. pounds and yen. negotiable CDs last for a predetermined duration. negotiable CDs operate on a short time horizon and mature (funds may be withdrawn) after a year or less. and funds can't be withdrawn from the deposit account until the predetermined date. the bank issues a certificate that guarantees the holder to be paid back her deposit plus interest.management or portfolio management often within the context of so-called "private banking".000.

it is easier to assess their investment risk as compared to stocks. at a specific interest rate. because the chances that a certain bank will fail are considered greater than the chance the government will fail. which may differ significantly from one CD to another. bond holders take priority over stock holders when bond issuers happen to be insolvent. low-risk. However. These reasons are especially appealing for investors who want to secure a steady stream of payments and want to diversify/mange the risk in their portfolios. . contrary to stocks. A certain wealthy individual may only want to save his money for a specific duration. So presumably. Because the difference in risk is normally considered minute.• Because negotiable CDs require large deposits. have steady and predetermined cash payments ending with a known repayment of principal. and sometimes by wealthy individuals. Due to the large amounts of capital involved. None of these has to be done if a company raised capital by issuing stocks. Also. Finally. lowinterest investment. raising capital by issuing bonds involves paying regularly interest payments and returning principal at a determined date. government T-bills (short-term bonds) are a common alternative. bonds are usually rated by various rating agencies for the probability of issuer default. On the other hand. Negotiable CODs Versus T-bills • Because negotiable CDs are primary used as a short-term. negotiable CDs can be a way to earn a slightly higher return on idle capital. From an issuer's perspective. From an investor's perspective. the interest rates and maturation dates are subject to negotiation between the saver and the bank. negotiable CDs typically offer higher interest rates to offset the increase in risk. they are typically held by institutional investors such as insurance companies and banks. bonds. banks that would not normally alter their rates or maturity offerings for normal individuals are more willing to negotiate deals when large amounts of capital are involved. CDs are considered somewhat more risky than T-bills. B-Part Explain the advantages and disadvantages of treasury bonds with reference to Pakistani environment.

Income Advantage 1. Bonds are debt securities.interest expense lowers the effective tax rate for an issuer. there are resources available to help you determine the advantages and disadvantages of bonds for you. The result can be poorer overall performance over the long-term. the bonds will default. The bond fund managers who were expecting continued income from those bonds may suddenly be forced to buy other bonds that don't pay as well. There are also risks involved with investing in bonds. A disadvantage of bonds is that they are only as good as the borrower's ability to pay the loans back. Security Disadvantage 2. a business or a private issuer. Bonds can be traded like other securities. the company's rate of return on borrowed capital. An advantage of bonds is that they tend to be a more secure place to invest money than stocks. corporate tax rates. Longer maturity . It is also a disadvantage if bonds are repaid early in a bond mutual fund. They take into account such factors as prevailing market yields for simmlar debt. and probably many more Advantages and Disadvantages of Bonds There are pros and cons to buying bonds. Bonds can be issued by a government entity. but they tend to be less aggressive than stocks. However. If the issuers of the bonds cannot pay back what they agreed to. and accounting professionals can use financial formulas to calculate the desired level of debt. the fluctuation of the price tends to be less volatile than stocks. Bonds can produce a steady stream of income. When you buy a bond you are lending money to someone who promises to pay you back with a set amount of interest by a specified date. Fortunately. so their purchase price can change.

A disadvantage to bonds is that you can not always trust the ratings systems. A. Many bond mutual funds guarantee investors that they will only buy AA bonds or better. This lowers the sale price of the bonds when it comes time to sell them. This allows investors to gauge how reliable a bond is expected to be. known as Freddie Mac. bonds and bond mutual funds containing mortgage loan debt were highly rated and considered safe. There are several companies that assign letter grades to bonds based on their credit worthiness." A bond rated D is in default. agencies like the Federal National Mortgage Association. When it became evident that there would be wide scale mortgage defaults. Rating Advantage 3.bonds can fall in value with fluctuating interest rates. B. The bonds containing the unpaid debt became virtually worthless. AAA is the highest rating. BB. An advantage of bonds is that they are subject to ratings systems. A bond rated AAA is considered very likely to be repaid on time and in full. Bonds rated with Cs are considered unreliable and referred to as "junk bonds. For years preceding the crisis. At the time. . There are also ratings of AA. and the Federal Home Loan Mortgage Corporation. BBB. they provided consistently good returns and rarely lost money. known as Fannie Mae. Treasury bonds backed by the United States government have no ratings. C and D. The most prominent example of this is the home mortgage crisis of 2008. They are considered the safest bonds of all. Risk Disadvantage 4. CCC. CC. In September 2008. were on the verge of collapse. the Federal Housing Finance Agency seized control of Fannie Mae and Freddie Mac to prevent the entire economy from collapsing under the weight of so much unpaid debt.

The disadvantage of tax exempt bonds are that they tend to pay less than ordinary bonds. Many municipal bonds are free of state taxes. Sometimes this can completely negate the tax savings. Income produced by bonds are considered income and must be reported on your tax return. Some of are also exempt from federal taxes. especially for higher income earners. . Investors who pay high taxes can take advantage of tax exempt bonds. Taxes then must be paid on the bond proceeds. This is an additional incentive to invest in bonds since lower taxes result in larger gains. This can significantly cut into the profits from bonds.Tax Exempt Bonds 5.