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Chapter 1

Investments - Background and Issues

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•Investments & Financial Assets

• Essential nature of investment•

• Real Assets•

• Financial Assets•

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The Investment Process

• Asset allocation• Security selection• Risk-return trade-off• Market efficiency• Active vs. passive management

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Active vs. Passive Management

Active Management•

Passive Management•

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Major Classes of Financial Assets or Securities

• Debt• Money market instruments• Bonds

• Common stock• Preferred stock• Derivative securities

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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

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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

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Key Trends - Financial Engineering

Repackaging Services of Financial Intermediaries

•

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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