What do Financial Investment Companies Do?

A financial investment companies principal purpose is to invest in securities. The funds for the investments are from people who financial company investors.  Their singular purpose is to maximize a shareholder's wealth.  Company profits or losses are shared by investors according to their portfolios. The performance of the securities in which the investment companies invest has a direct correlation with its own performance.

How are Financial Investment Made?

People with cash, and who want to hedge against inflation or are looking for capital appreciation and another source of income, may invest in financial investment companies. Usually, such investments are made indirectly through intermediaries such as banks, mutual funds, insurance companies, collective investment schemes, pension funds, and investment clubs. Such intermediaries generally make investments using money from many individuals, getting better returns due to economies of scale.

Financial Investment and Exchanges

Markets where financial instruments are traded are called exchanges. There are several kind of exchanges dealing with a particular product. There are stock exchanges, futures exchanges and commodity exchanges. Each of these have their own rules and procedures, to ensure fairness to investors, and smooth functioning

Exchanges are monitored by regulating agencies. The American stock market is regulated by the Securities and Exchange Commission (SEC) and the Indian stock market is regulated by the SEBI or the Securities and Exchange Board of India.

Financial investments can include equities, real estate, debt instruments, derivatives and currencies. These assets are acquired with the hope of increasing wealth by enhancing cash flows and capital appreciation. Due to inherent risk with all investments, value of these assets is tied to the gain or loss of the underlying instrument.

There are many markets in which these instruments are traded. Some of these are:

    Bond Market –Products traded in this market include:

  • Fixed income bond
  • Bond valuation
  • Municipal bond
  • Government bond
  • High-yield debt
  • Corporate bond

     Stock (Equities) Market –Products traded in this market include:

  • Stock
  • Registered share
  • Preferred stock
  • Voting share
  • Common stock

     Forex Market –Products traded in this market are:

  • Currency
  • Currency futures
  • Forex swap
  • Non-deliverable forward
  • Foreign exchange options
  • Currency swap

     Derivatives Market –Products traded in this market include:

  • Credit derivative
  • Forwards
  • Options
  • Futures
  • Swaps
  • Hybrid security

There are numerous other markets in which financial instruments are traded. These include:

  • Commodity Market
  • Money Market
  • OTC Market
  • Spot Market
  • Real Estate Market

With such a broad range of investment opportunities, a strong knowledge of investing is absolutely essential to ensure best returns on investment. It is prudent to engage the services of a good financial adviser, who has the knowledge and the technical and financial tools to manage portfolios effectively.

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