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Institutions, Investment, and Growth - Assignment Example

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The author of the paper "Institutions, Investment, and Growth" will begin with the statement that investment institutions are establishments that aid in the facilitation of financial resources from the source to users using different means as represented in three categories…
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Download file to see previous pages Contractual savings institutions represent a type of investment institution that receives their funds on a periodic basis via contracted arrangements. They consist of two principal types, insurance companies and pension funds that are heavy investors in that they are entrusted with large pools of funds on which they seek to earn interest in meeting their return obligations and payout expectations (Tallman, 2003, P. 748). The third category is investment intermediaries as represented by underwriters, brokers and investment funds that are primarily intermediates in the process, but also have substantial holdings (Goodchild and Callow, 2000, P. 163). Depositary institutions have a responsibility to protect the funds they are entrusted with, thus their investment strategies are low on the risk-taking scale as they have to maintain liquidity on call. They are overseen by an appropriate regulatory body that oversees and restricts the types of investments and the associated risks they can undertake (Gup, 2003, Pp. 37-39). Contractual savings institutions have more defined payouts, thus their liquidity requirements are lower and more predictable. This classification has the capability of investing a higher percentage of their funds into securities, bonds, and equities that are of a longer-term duration (Chorafas, 2000, Pp. 59). Financial intermediaries are comprised of mutual funds, unit trusts, investment trusts, and hedge funds, all of which have differing strategies. Mutual funds represent the pooling of cash from a diverse group of people and companies that utilize these funds in a broad range of asset classes such as bonds, property, and equities. Unit trusts have limitations with respect to their exposure levels and thus are more conservative in their approach to investment strategy. Investment trusts seek rates if returns that are higher than the preceding as this is the rationale for their existence with investors made aware in the prospectus of the potential of losing all or part of their funds (Liaw, 1999, P. 14-15). The high-risk class of the group is found in hedge funds that engage in a broad array of investments that can range from low risk to high risk depending on the preferences of the investors and the purpose of funds (Liaw, 1999, P. 14-15). (c) Objectives in investment management represent the return level that is expected, and the tolerance for risk associated. These factors can range from high growth, high return, moderate growth, income, stability, and all manner of combinations as can the time period involved. High return entails higher risk, with these usually measured against government bonds that have high safety and low yield (Boes and Bezil, 2004, P. 32). Constraints in investment management are liquidity, the time horizon involved, tax considerations, regulations, and legal factors, along with ethical principles as defined by the investment parameters. The fund manager is responsible for devising the structuring the portfolio that optimizes the client’s funds, Through analysis, the fund manager then looks at the return and risk factors to optimize them. Ongoing management of the portfolio another part of the fund manger’s function that adjusts the investments as circumstances warrant. ...Download file to see next pagesRead More
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