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Unit 2

Investing EnvironmentJoey Lai,ITP-Banking Academy Vietnam

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Content

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Financial System

A financial institution/ intermediary acts as an agent in raising money from the investors.

The markets that are used to raise funds / in which financial securities are tradedFinancial MarketsFinancial Institutions

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London Stock Exchange

This is the oldest stock exchange in the world which was established in the year of 1801. A real international market in which nearly 3,000 companies from 70 different countries are listed.4

Financial Institution: HSBC

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www.themegallery.comClassification of Financial Markets

FinancialMarketsthe market for the issues and trades of short-term securities.TextMoney MarketCapital MarketThe market for the issues and trades of long-term securities

Trading in the money markets is done over the counter and is wholesale.6

Stages of Financial MarketsA market where newly issued securities are sold A market where existing securities are traded

Investors are traded with each other in the Secondary Market.The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities.Anasset's ability to be easily converted through an act of buying or selling without causing asignificant movement in the price and with minimum loss of value.7

Investing funds in financial securities

Debt securities Equity securities

Financial securities ( also called financial instruments) are financial claims on the issuers future income or assets.9

Sample of Ordinary Share

Ordinary Shares Investment relatively higher returnrepresents equity ownership entitles the owner to a vote in matters

Relatively higher riskResidual claimantDividends are not guaranteed. AdvantagesDisadvantages

Shareholders RightsVoting Power on Major Issues that affecting the businessOwnership in a Portion of the CompanyThe Right to Transfer Ownership Right to receive dividendsThe Right to Sue for Wrongful ActsEntitle to receive financial information, annual report

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Ordinary Shares Investment

Share prices fluctuate daily Decrease in valueNo guaranteed on dividend paymentsIn case of liquidation

Very High returnIncrease in valueCurrent incomeHighly liquidTax benefits on unrealised capital gains

Debt securitiesA paper or electronic obligationthat enables theissuing party to raise funds bypromisingto repaya lenderin accordance with terms ofa contract.

Sample of a bond

Features of bonds

Maturity Dates(Expiry Dates)Interest Payment(Coupon payment)Principal repaymentMinimum investment(e.g. 100}

Investing in bondsLess volatile than investing in sharesHigh yieldStability and securityConsistent incomesTax benefitsInterest rate risksCredit risksCall risksInflation risksBenefitsRisks

Banks Savings AccountsNational Savings and InvestmentsBuilding Societies

.A state-ownedsaving bank in the United Kingdom.Very safe but its rates are often low.

offerbanking and related financial services especially mortgage lending for its members.

Types of UK Investment

A traditional form of financial investment where the money is saved on a regular basis and there is no capital loss as an investment risk. (Subject to inflation risk)

Credit UnionsShares

Offer flexible and community based savings and loan products.Shares are a popular financial investment option.

Types of UK Investment (cont)

Collective investmentspooling of funds for a single investment fund operated by a fund manager.

BondsSharesare traded on the stock market at a set interest rate.(Debt securities)Loans to a company, local authority or even the government are all bond options.

Types of UK Investment (cont)

Collective investmentspooling of funds for a single investment fund operated by a fund manager.

www.themegallery.comFinancial Intermediaries

Friendly societies

Insurance Companies

Building Societies

Banks

Pension fund

Different Investment Products

give you a secure and flexible way to manage your day-to-day finances.

Savings Accountse.g. Individual Savings Accounts (ISA), Cash Individual Savings Account (Cash ISA), Regular Savings Account, Instant Access Savings, Fixed Rate Bond etc.

Types of InvestmentNational savings accounts & savings scheme types

National Savings are secure investments guaranteed by the British Government.

Example: Premium Bonds, Direct ISA, Direct Saver, Income Bond, Investment Account, Fixed-Term Investment

Types of Investment

Stocks and SharesAre also known as equities.do not have a fixed price but fluctuate up and down. returns on this investment are dividends and / or capital gains.

Sample: preference shares, ordinary shares, IPO, blue chips

Types of Investment

Debt Securities (Bonds/ Fixed Income Securities)When you purchase them, you will receive interest on the bond as it is considered a loan.Example: gilts, treasury bills, treasury notes, government bonds, corporate bonds

Types of InvestmentUnit Trusts and OEICsUnit trusts and OEICs ("Open Ended Investment Companies") are collective or mutual funds which allow the monies contributed by a large number of investors to be "pooled" together for investment in the stock market.

Example: Closed-end funds, open- ended funds, load funds

Investing in Mutual Funds AdvantagesProfessional managementInvestment diversificationLiquidityExplicit investment goalsSimple reinvestment programs

DisadvantagesMany funds charge hefty fees, leading to lower overall returns.Over time, statistics have shown that most actively managed funds tend to underperform their benchmark averages.Mutual funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.

Types of InvestmentInsurance/ Endowment policies An endowment policy is a savings and life assurance policy for an agreed period, the minimum term being 10 years.Example: with profits endowment, low cost endowment, friendly society plans, low start endowment, annuities

THANKS!

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