Economics
Financial Investment
Financial investment refers to the allocation of funds into assets with the expectation of generating income or profit. This can include purchasing stocks, bonds, real estate, or other financial instruments. The goal of financial investment is to increase wealth over time through capital appreciation, dividends, or interest payments.
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7 Key excerpts on "Financial Investment"
- Jörg Stosberg(Author)
- 2018(Publication Date)
- Peter Lang International Academic Publishers(Publisher)
2. Risk in the Theory of Investment 2.1 General Theory of Investment 2.1.1 Basic Theory of Investment 2.1.1.1 Definition and Categories of Investment As economic actors make investments practically every day investing is a core economic activity. Firms build new production facilities, acquire better machines or try to enhance the capabilities of their staff by paying for seminars. In doing so they try to achieve future goals of the company by spending money or resources at present. Investment decisions deeply influence the profitability of firms in the future because they are a decisive determinant of the future competitive position. Therefore, staying in the market and making profits requires a careful planning of the investment program. Although the term investment is ubiquitously used in economic theory, its precise meaning often remains unclear. The etymological root of the word Investment lies in the Latin word investire which means to dress up. Modern economic theory offers various definitions of the term investment which cannot be completely discussed here. 1 In microeconomics one can refer to an action as an investment when an economic actor spends money at present with the expectation to receive future returns which are supposed to be higher than the amount that has originally been spent. Investments usually imply the purchase of material or immaterial assets serving the interest of the investor. Economic theory claims that rational investors only invest in projects that help to attain the goals of the investor implying that investments will only be made, if they increase the profits of private firms . Usually the price of an investment is known to the investor when planning a project. The benefits of investment projects, however, are normally uncertain. Investors may plan the expected cash flows from a given project but can never be sure that unforeseen events in the future will not alter this expected revenue stream.
eBook - PDF- Chan S. Park, Gunter P. Sharp(Authors)
- 2021(Publication Date)
- Wiley(Publisher)
The sacrifice takes place in the present and is cer- tain. The reward comes later, if at all, and the magnitude may be uncertain.” In some cases, the element of time predominates (e.g., government bonds). In others, risk (uncertain out- come) is the dominant factor (e.g., betting on a dog race). In yet others, both are important (e.g., AI development). The investment examples given are often classified in two categories: financial invest- ments and real investments. A Financial Investment is one in which the investor allocates his or her resources to some form of financial instrument, such as stocks or bonds. Real investments, on the other hand, are represented by physical assets such as a new plant and equipment. This book is about evaluating such investment options, considering both time and risk. However, we must emphasize that we are primarily concerned with real (project) investments as contrasted with Financial Investments. Economic evaluation of real investments is variously referred to as economic analysis, engineering economy, and economic decision analysis. In particular, the application of eco- nomic analysis techniques in the comparison of engineering design alternatives is referred to as engineering economy. The widespread use of the engineering economy principle in nonengineering areas, however, has brought about use of the more general term economic analysis. Any contemplated or proposed investment requires evaluation to ensure, with reasonable confidence, that the expected benefits of the project will exceed costs. Whatever methodol- ogy is used, certain basic principles remain unchanged. For example, these principles should be applicable whether the investment is for a new firm, the expansion of an existing facility, 3 4 CHAPTER 1 Accounting Income and Cash Flow or the formation of a new corporate entity.
eBook - PDFInvesting in Europe
Old problems and new opportunities
- Olimpia Fontana, Elisabetta Tarasco(Authors)
- 2022(Publication Date)
- Peter Lang Group(Publisher)
Chapter 2 Investment: Some definitions and macroeconomic dynamics Firstly, there is sometimes confusion about what investment is� In the common parlance, investment often refers to the purchasing of a financial assets, like government bonds or firms’ shares� However, in the political economy debate, the term has a more specific meaning� Only the flow of expenditure that increases the physical stock of capital and generates rewards over time is defined as investment; it therefore assumes a long-term dimension� 1 In order to understand the role and impact of investment on the economy, clarification is needed on different types of investment that exist� For example, public investment and infrastructure are sometimes used interchangeably, as if synonymous� The two concepts may indeed overlap to some extent; although a large part of public investment is in infrastructure, not all infrastructure investment is of a public nature, nor is all public investment dedicated to traditional infrastructure (Kappeler and Valila, 2007)� 2 Moreover, the public debate usually lacks a macroeconomic perspec- tive on investment, which is not normally seen as a component of a more general equilibrium that must apply both at the domestic and external levels� The inherent risk is to have too strict a focus on the public sector fiscal balance, without considering the implications that certain rules on debt and deficit may have for the rest of the economy� This perspective has been particularly relevant in the aftermath of the financial crisis, when external imbalances between Eurozone countries played a crucial role in amplifying the crisis� Furthermore, without a broader macroeconomic 1 The flow of investment is the yearly increase in the stock of capital, where the former is just a small part of the letter� 2 Kappeler A� and Valila T� (2007), Composition of Public Investment and Fiscal Feder- alism: Panel Data Evidence from Europe, Luxembourg: European Investment Bank, Economics Department�
No longer available |Learn moreInvestments
An Introduction
- Herbert Mayo(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
1 I nvesting is a process by which individuals con -struct a portfolio of assets designed to meet speci -fied financial goals. Specific objectives range from financing retirement or paying for a child’s education to starting a business and having funds to meet financial emergencies. The specification of financial goals is im -portant, for they help determine the appropriateness of the assets acquired for the portfolio. Part 1 of this text covers the mechanics of buying and selling financial assets, the legal and tax environ -ment in which investment decisions are made, and cru -cial financial concepts that apply to asset allocation and portfolio management. Chapter 1 introduces important definitions and concepts that appear throughout the text. Chapter 2 is devoted to the mechanics of investing. These include the process by which securities are issued and subsequently bought and sold. Next follows one of the most important concepts in finance, the time value of money (Chapter 3). All investments are made in the present but returns occur in the future. Linking the fu -ture and the present is the essence of the time value of money. Chapter 4 combines several disparate topics. It be -gins with financial planning and the importance of asset allocation. However, you execute your financial plan in a world of taxation and efficient financial markets. Tax rates differ on long-term and short-term capital gains; some investments defer tax obligations and others avoid taxation. These differences in taxation affect the amount of your return that you get to keep . In addition, some facet of the tax law changes each year, complicat -ing investment decision making and affecting invest -ment strategy. Since the future is not known, all investments involve risk. Chapter 5 is devoted to sources of risk, how risk may be measured, and how it may be managed.
eBook - PDF- Janette Rutterford, Marcus Davison(Authors)
- 2017(Publication Date)
- Red Globe Press(Publisher)
Part I Investment Basics Chapter 1 Products, markets and players 2 Chapter 2 Investment return and risk 40 CHAPTER CONTENTS Introduction 2 Securities markets products 4 Risks of securities markets 8 The market: basic features 10 Market efficiency: an introduction 17 London: profile of an international financial market 24 Summary 38 Review exercises 38 1 Products, markets and players Learning objectives for this chapter After studying this chapter you should be able to ❍ describe how the financial markets mediate between savers and borrowers ❍ describe the role played by securities within the financial markets ❍ classify the activities of financial markets according to a range of useful criteria ❍ classify different types of securities according to their key characteristics of risk and return ❍ apply the theory of efficient markets to real-life situations ❍ appreciate the main historical influences on the structure and configuration of modern securities markets. INTRODUCTION This book is an introduction to the theory and practice of investment in securities, the collective term for shares (also referred to as equities ) issued by companies and bonds issued by companies, governments and other organisations. Investment is the opposite of consumption. Consumption is the outlay of money to acquire goods or services to be consumed either immediately or at some time in the not-too-distant future. Investment is the outlay of money with the sole objective and expec-tation of receiving a money return at some future date or dates. An essential feature of any investment transaction is therefore ‘present cash outflow, future cash inflow’. In an important extension to this principle, the sacrifice of an expected present cash inflow has in principle the same effect as a present cash outflow, and a reduction in future cash outflow has the same effect as a future cash inflow. Investment may be in real assets or in financial assets .
eBook - PDF- Sudanshu Pandeya(Author)
- 2023(Publication Date)
- Society Publishing(Publisher)
INVESTMENT AND DECISION- MAKING IN FINANCIAL MANAGEMENT CHAPTER5 CONTENTS 5.1. Introduction .................................................................................... 158 5.2. Investment and Decisions in Finance .............................................. 158 5.3. Investments, Decisions, and Risk .................................................... 161 5.4. Decision Making: A Neuroeconomic Approach .............................. 165 References ............................................................................................. 169 Introduction to Financial Management 158 5.1. INTRODUCTION There are two methods to incur investment costs to make a profit. Fix investing, like equipment, plants, or structures, as well as Financial Investments, including stocks and bonds, are also examples of investments (Copur, 2015). Both types of funding may help a business expand. Economics examines risk from the viewpoint of judgment, looking at how people make choices when there is imperfect information. It is necessary to mix theories and previous investigations to comprehend and analyze risk (Fried and Hisrich, 1994). The pure theory could have certain flaws, while an empirical study done on its own might be limited and remain in its infancy. By fusing theory into practice, one may better identify the advantages and disadvantages of such a theory. Theories may be improved in this manner, which can lead to a greater comprehension of hazards. The chapter explains how mainstream economics approaches investment decisions and also what roles risk as well as uncertainty play in the judgment process (Figure 5.1) (Ahmed et al., 2021). Figure 5.1. Financial judgments. Source: https://qsstudy.com/investment-decision-financial-management/. In decision-making process, neuroeconomics has also investigated the presence of financial risks, including their role within decision-making processes.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
Our perspective then shifts to consider how these Financial Investments appear to capital suppliers such as the households that are saving funds. Households have a range of investment options: bank accounts, certificates of deposit, money market mutual funds, bonds, stocks, stock and bond mutual funds, housing, and even tangible assets like gold. Finally, the chapter investigates two methods for becoming rich: a quick and easy method that does not work very well at all, and a slow, reliable method that can work very well over a lifetime. 17.1 How Businesses Raise Financial Capital LEARNING OBJECTIVES By the end of this section, you will be able to: • Describe financial capital and how it relates to profits • Discuss the purpose and process of borrowing, bonds, and corporate stock • Explain how firms choose between sources of financial capital Firms often make decisions that involve spending money in the present and expecting to earn profits in the future. Examples include when a firm buys a machine that will last 10 years, or builds a new plant that will last for 30 years, or starts a research and development project. Firms can raise the financial capital they need to pay for such projects in four main ways: (1) from early-stage investors; (2) by reinvesting profits; (3) by borrowing through banks or bonds; and (4) by selling stock. When business owners choose financial capital sources, they also choose how to pay for them. Early-Stage Financial Capital Firms that are just beginning often have an idea or a prototype for a product or service to sell, but few customers, or even no customers at all, and thus are not earning profits. Such firms face a difficult problem when it comes to raising financial capital: How can a firm that has not yet demonstrated any ability to earn profits pay a rate of return to financial investors? For many small businesses, the original source of money is the business owner.
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