Investments

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Chapter 1

• The Investment Environment

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Investments Financial Assets

• Essential nature of investment
• Reduced current consumption
• Planned later consumption
• Real Assets
• Assets used to produce goods and services
• Financial Assets
• Claims on real assets

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Role of Financial Assets and Markets in the
Economy

• Consumption Timing
• Allocation of Risk
• Separation of Ownership

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Financial System Clients and Their Needs

• Household Sector
• Primary Need Invest Funds
• Business Sector
• Primary Need Raise Funds
• Government Sector
• Primary Need Raise Funds

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How the Financial System Meets the Needs of
Participants

• Financial Intermediation
• Investment Banking
• Financial Innovation Derivatives
• Responding to Regulation Taxes

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Investments and Innovation

• Technology and Delivery of Service
• Computer advancements
• More complete and timely information
• Globalization
• 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
• 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
• Bundling and unbundling of cash flows
• Slicing and dicing of cash flows
• Examples strips, CMOs, dual purpose funds,
  principal/interest splits

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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

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