Nims

Just before we look at the suppliers and demanders of funds, it is in order that we familiarise ourselves with the environment in which these suppliers and demanders of funds exist. They do exist in the financial markets. Financial markets are forums in which suppliers of funds and demanders of funds can transact business directly. A primary market is the one which “new” securities are sold. The secondary markets can be viewed as “pre owned” securities market. Fianacial institutions such as banks actively participate in the financial markets as both suppliers and demanders of funds.

Suppliers and Demanders of Funds

Key participants or rather suppliers and demanders of funds in the financial markets are individuals, businesses, and government.  firms and government

• Government

Governments are typically net demanders of funds. They typically borrow more than they save. This is because of the need to finance State and local projects & operations.

• Business

Business firms are are also net demanders of funds. They typically borrow more than they save. The borrowing can be attributed to Investments in production of goods and services.

• Individuals

Individuals as a group are the net suppliers of funds for financial institutions (They save more than borrow). Some are neede of loans to finance house, auto, among others. The individuals are therefore Typically the net suppliers of funds

The investment Process

The investment process involves the financial institutions (banks, savings and loans, savings banks, credit unions, insurance companies, pension funds) actively participate in the financial markets as both suppliers and demanders of funds.

The financial markets (Money and capital markets) act as forums in which suppliers of funds and demanders of funds can transact business directly

Then we have the suppliers and demanders of funds whose roles are well covered above. We will discuss in details the process in our consequent articles. Let us now look at the types of investors.

The components on an investment portfolio are determined by the types of investment the investor wishes to invest in. having learnt about the basic terminologies in the investment environment, I believe we are on the same page to look at the various types of investments.

Types of investments

1. Securities or Property: 

Securities include stocks(shares), bonds, options whereas Real Property: land, buildings, machinery. The tangible Personal Property which includes gold, artwork, antiques, etc are also included in this category.

2. Direct or Indirect

With the direct investment, the investor directly acquires a claim on a financial asset say for example stock. On the other hand, with the Indirect investment, the investor owns an interest in a professionally managed collection of securities or properties.

    3. Debt, Equity or Derivative Securities

–Debt: investor lends funds in exchange for interest income and repayment of loan in future (bonds)

–Equity: represents ongoing ownership in a business or property (common stocks)

–Derivative Securities: neither debt nor equity; derive value from an underlying asset (options)

    4. Low Risk or High Risk

–Risk is the chance that actual investment returns will differ from those expected. with this in mind, there can therefore be a high risk investment and a low risk investment basically differentiated by how likely the deviation from expected returns is likely to unfold.

    5. Short-Term or Long-Term

This type looks at the time to maturity of a given investment. Owing to this fact, Short-Term investments mature within one year while Long-Term investments have maturities of longer than a year.

6. Domestic or Foreign

This type is on the basis of the geographical jurisdiction in which the investment is undertaken. Domestic investment is where a citizen invests in a company or securities within his own country of origin or citizenship Kenyan whereas Foreign investment is the opposite of the above where an investor invests across boundaries in the securities or company in a foreign country.

Those are the various types of investments. Let’s now look at the Suppliers and Demanders of Funds in the Investment environment.

Any rational financial enthusiast must have encountered these Investment terminologies (Return, securities, securities market, etc) in the various investment environments. But what exactly is investment? Before we dive deep into the definitions, this article is aimed at acquainting us with the basic terminologies of investment to help us get started on the right foot.

• Investment is any vehicle into which funds can be placed with the expectation that it will generate positive income and/or that its value will be preserved or increased. Investment means the sacrifice of current cash for future cash. It involves time and risk. In an economic sense, an investment can be described as the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
• portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.
• Risk: chance that actual investment returns will differ from those expected
• Return can basically be described as the reward an investor gets for for owning an investment. can be in the form of current income or Increase in value.
• Investor:  an investor is someone who provides money or financial resources for an enterprise, such as a corporation, with the expectation of financial or other gain.

Investment environment

  It encompasses the kind of marketable securities that exists and where and how they are bought and sold.

• Investment process;  This is concerned with how an investor should proceed in making decisions about what marketable securities to invest in, how extensive the investment should be, and when the investment should be made.

• Securities;  This is a legal representation of the right to receive prospective future benefits under stated conditions.

• Security markets; This is a meeting place for buyers and sellers. It is a part of the financial market where securities are traded between subjects of the economy, on the basis of demand and supply.

With these basic terminologies, all is set to look at the different types of investments.