Investment Management

13738 WordsDec 1, 200855 Pages
1 INVESTMENT MANAGEMENT Note: These course notes were written by Professor Virginia Maracine PhD and Professor Emil Scarlat PhD Department of Economic Cybernetics, Academy of Economic Studies Bucharest, using the announced references (see the Course 's Syllabus). Chapter 1 Introduction. Basic of Investment 1.1. What Investment it is about? But Investment Management? 1. Investment - concepts and types The word Investment originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others ' pockets. The basic meaning of the term being an asset held to have some recurring or capital gains. It is an asset that is expected to give returns without any work on the…show more content…
Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted. I is divided into non-residential investment (such as factories) and residential investment (new houses). Net investment deducts depreciation from gross investment. It is the value of the net increase in the capital stock per year. Investment, as production over a period of time ("per year"), is not capital. The time dimension of investment makes it a flow. By contrast, capital is a stock, that is, an accumulation measurable at a point in time (say December 31st). Investment is often modeled as a function of Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than loaning them out for interest. Finance Approach In finance, investment = cost of capital, like buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real
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