chapter 1 investments - background and issues mcgraw-hill/irwin © 2004 the mcgraw-hill companies,...
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Chapter 1
Investments - Background and Issues
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
•Investments & Financial Assets
• Essential nature of investment•
• Real Assets•
• Financial Assets•
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Investment Process
• Asset allocation• Security selection• Risk-return trade-off• Market efficiency• Active vs. passive management
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Active vs. Passive Management
Active Management•
Passive Management•
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Major Classes of Financial Assets or Securities
• Debt• Money market instruments• Bonds
• Common stock• Preferred stock• Derivative securities
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Investments and Innovation
Technology and Delivery of Service• Computer advancements• More complete and timely informationGlobalization• Domestic firms compete in global
markets• Performance in regions depends on
other regions• Causes additional elements of risk
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Key Trends - Globalization
International and Global Markets Continue Developing• Managing foreign exchange• Diversification to improve performance• Instruments and vehicles continue to develop (WEBs)• Information and analysis improves
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Key Trends - Securitization
Securitization & Credit Enhancement• Offers opportunities for investors and
originators• Changes in financial institutions and
regulation• Improvement in information capabilities• Credit enhancement and its role
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Key Trends - Financial Engineering
Repackaging Services of Financial Intermediaries
•
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Future
• Globalization continues and offers more opportunities
• Securitization continues to develop • Continued development of derivatives and
exotics• Strong fundamental foundation is critical• Integration of investments & corporate
finance