Investment Alternatives: Direct Investment in Financial Assets

Investment Alternatives: Direct Investment in Financial Assets

Types of Investments

•      Direct Investment

•      Indirect Investment

Direct Investment

Types of Financial Assets

•      Non-Marketable Financial Assets

•      Money Market Securities

•      Capital Market Securities

•      Derivatives

Non-Marketable Financial Assets

These are non-negotiable, liquid and safe investments which involve personal transaction in between owner and issuer.

•      Savings Accounts

•      Non-Negotiable CDs

•      Money Market Deposit Accounts

•      Government Savings Bonds

Money Market Securities

These are negotiable, short-term, liquid & low risk assets.

•      Treasury Bill (Risk-free return)

•      Negotiable CDs

•      Euro-dollars

•      Repurchase Agreements

Capital Market Securities

These are negotiable, long-term instruments. More risky than money market assets. Two types of capital market securities –

•             Debt or Fixed Income Securities

•             Equity Securities

Capital Market Securities –
Debt or Fixed Income Securities

These securities have fixed payment and repayment schedule.

•       Government Securities (fixed interest income)

– Federal Govt. Securities (Risk-free)

– Govt. Agency Securities (Govt. National Mortgage Association)

– Municipal Securities (Tax exempt, p. 33)

•       Corporate Securities (Senior securities, more risky than govt. securities, fixed interest income)

–    Corporate Bond

–    Debenture

–    Convertible Bond

–    Callable Bond

•         Asset-Backed Securities (securities issued against asset linked debt combined together)

•       Euro-Bond and Foreign-Bond

Capital Market Securities –
Equity Securities

These provide ownership right and residual claim (dividend income) after payment of all obligations.

•      Preferred Stocks (no fixed maturity but can be redeemed by call)

– Cumulative Preferred Stock

– Non-Cumulative Preferred Stock

•      Common Stocks

•      International Equity Securities

–    Euro-Stock

–    Foreign Stock

–    American Depository Receipts (ADRs)

Derivative Securities

•      Options

Right to buy or sell within a specified period at a specified price.

– Put Option (Right to sell)

– Call Option (Right to buy)

•      Futures

Agreement for future exchange at currently determined price. It offsets the risk. Not exercised in most cases.