2. Investment Management

Investment management relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups: long-term assets and short-term, or current assets.

Nowadays investors face a lot of choices. Along with stocks and bonds of large companies and government debt securities, investors can now-own stocks of small companies, the stocks and bonds of companies headquartered in foreign countries, high-yield bonds, collateralized mortgage obligations, floating-rate notes, swaps, puts, calls, and futures contracts. The list is seemingly endless and it continues to grow. Furthermore, the ability to purchase these securities has become both less expensive and more convenient with the advent of advanced communications and computer networks. The challenge to investors is increasing because the investment environment is becoming more and more complex. With the rapid evolution that the investment industry is undergoing, new securities, markets, investment management techniques have appeared.

When making decisions with regard to what marketable securities to invest in, how big the investment should be, and when the investment should be made, the investor:

• sets investment policy and determines objectives,

• performs security analysis,

• constructs a portfolio,

• revises the portfolio,

• evaluates the performance of the portfolio.

For any type of security, the risk can by reduced by investing in more than one firm. This is called "diversification". An investor with stocks and bonds issued by a number of firms is said to have a diversified portfolio.

Diversification does not eliminate all risks. Events like recession, high interest rates, and so on may depress profits and stock prices of all firms.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
collateralized mortgage	облигация, обеспеченная	облігація, забеспеченая
obligation	пулом ипотек	пулом іпотек
floating-rate note	облигация с плавающей ставкой	облігація з змінною ставкою
advent	приход, появление	прихід, появлення
to construct a portfolio	создать портфель	створити портфоліо
to revise a portfolio	пересмотреть портфель	передивитися портфоліо
to depress the profits	снижать прибыль	знижувати прибуток

Ex. 11. Give extensive answers to these discussion guestions:

1. How is financial management organized in a typical firm?

2. What sources of financial resources are used by businesses? How do business firms use their funds? How can they increase their capital?

3. Explain why all firms need both fixed and working capital.

4. How are different assets, say current or fixed, managed?

5. How are financial risks managed?

6. What do financial managers take into account when they try to strike the right balance between different sources of funds, e.g. between long- and short-term debt or between debt and equity?

7. What formula for finding the best financial structure for a firm would you suggest?

8. How can investment projects be evaluated?

9. What most typical investment strategies are used by business firms?

10. Financial analysis is the use of financial data to evaluate the financial position of a firm. How does it work in practice?

11. The purpose of accounting is to keep track of sources and uses of funds and to give an accurate picture of the firm's financial position. What accounting data are used in financial management?