Unit 2

Investing
Environment
Joey Lai,
ITP-Banking Academy Vietnam
Content
Financial Markets
Financial Intermediaries
Different Safe Investment
Products
Financial System
A financial institution/ intermediary
acts as an agent in raising money
from the investors.
The markets that are used to raise funds /
in which financial securities are traded
Financial Markets
Financial Institutions
London Stock Exchange
Financial Institution: HSBC
www.themegallery.com
Classification of Financial Markets
Financial
Markets
the market for the
issues and trades of
short-term securities.
Text
Money Market
Capital Market
The market for the
issues and trades of
long-term securities
Stages of Financial Markets
Primary
Market
Secondary
Market
A market where newly
issued securities are sold
A market where existing
securities are traded

Investing funds in financial securities
Debt securities
Equity securities
Sample of Ordinary Share
Ordinary Shares Investment
relatively higher return
represents equity
ownership
entitles the owner to a
vote in matters


Relatively higher risk
Residual claimant
Dividends are not
guaranteed.
Advantages Disadvantages
Shareholders Rights
Voting Power on Major Issues that affecting
the business
Ownership in a Portion of the Company
The Right to Transfer Ownership
Right to receive dividends
The Right to Sue for Wrongful Acts
Entitle to receive financial information, annual
report




Ordinary Shares Investment



Share prices fluctuate
daily
Decrease in value
No guaranteed on
dividend payments
In case of liquidation











Very High return
Increase in value
Current income
Highly liquid
Tax benefits on
unrealised capital gains

Debt securities
A paper or electronic obligation that enables
the issuing party to raise funds
by promising to repay a lender in accordance
with terms of a contract.


Sample of a bond

Features of bonds
Maturity
Dates
(Expiry Dates)
Interest
Payment
(Coupon
payment)
Principal
repayment
Minimum
investment
(e.g. 100}
Investing in bonds
Less volatile than
investing in shares
High yield
Stability and security
Consistent incomes
Tax benefits
Interest rate risks
Credit risks
Call risks
Inflation risks
Benefits Risks
Investment
Type
Capital
Security
Protection
from Inflation
Income Growth Liquidity
Savings
accounts
Excellent Weak Fixed, very
stable, low
None Good to
excellent

Money market
securities
(treasury bills,
money market
funds)

Good to
excellent

Weak to average

Fixed, very
stable

Generally
none

Very good

Government
bonds (federal,
provincial,
municipal)

Good to
excellent

Average

Fixed, very
stable

None

Good to very
good

Preferred shares
Good to
average

Average

Relatively
fixed

Negligible

Good

Common shares

Weak to
moderate

Variable

Variable

Moderate to
excellent

Relatively
good to very
good


Corporate bonds
Good to
excellent

Average

Fixed, very
stable

Generally
none

Good

Mutual funds

Weak to
average

Variable,
generally good

Variable

Moderate to
excellent

Good

Indexed term
savings

Excellent

Good in the long
term

Only known
at maturity

Good

Weak

Debentures

Good to
average

Good

Variable

Generally
none

Good

Investment
Type
Capital
Security
Protection
from
Inflation
Income Growth Liquidity

Banks Savings Accounts
National Savings and Investments
Building Societies
.
A state-owned saving bank in the
United Kingdom.
Very safe but its rates are often low.
offer banking and related financial
services especially mortgage lending
for its members.
Types of UK Investment
A traditional form of financial investment where the
money is saved on a regular basis and there is no
capital loss as an investment risk. (Subject to inflation
risk)
Credit Unions
Shares
Offer flexible and community based
savings and loan products.
Shares are a popular financial
investment option.
Types of UK Investment (cont)
Collective investments
pooling of funds for a single
investment fund operated by a fund
manager.
Bonds
Shares
are traded on the stock market at a set interest rate. (Debt
securities)
Loans to a company, local authority or even the
government are all bond options.
Types of UK Investment (cont)
Collective investments
pooling of funds for a single
investment fund operated by a fund
manager.
www.themegallery.com
Financial Intermediaries
Friendly societies
Insurance Companies
Building Societies
Banks
Pension fund
Different Investment Products
give you a secure and flexible way
to manage your day-to-day
finances.

Savings Accounts
e.g. Individual Savings Accounts (ISA),
Cash Individual Savings Account (Cash
ISA), Regular Savings Account, Instant
Access Savings, Fixed Rate Bond etc.
Types of Investment
National savings accounts
& savings scheme types
National Savings are secure
investments guaranteed by
the British Government.

Example: Premium Bonds, Direct ISA, Direct Saver, Income
Bond, Investment Account, Fixed-Term Investment
Types of Investment
Stocks and Shares
Are also known as equities.
do not have a fixed price but
fluctuate up and down.
returns on this investment are
dividends and / or capital gains.

Sample: preference shares, ordinary shares,
IPO, blue chips
Types of Investment
Debt Securities (Bonds/ Fixed
Income Securities)
When you purchase them, you will
receive interest on the bond as it is
considered a loan.
Example: gilts, treasury bills, treasury notes, government
bonds, corporate bonds
Types of Investment
Unit Trusts and OEICs
Unit trusts and OEICs ("Open Ended
Investment Companies") are collective or
mutual funds which allow the monies
contributed by a large number of investors
to be "pooled" together for investment in
the stock market.
Example: Closed-end funds, open- ended funds, load funds
Investing in Mutual Funds
Advantages
Professional management
Investment diversification
Liquidity
Explicit investment goals
Simple reinvestment
programs

Disadvantages
Many funds charge hefty fees,
leading to lower overall returns.
Over time, statistics have shown
that most actively managed funds
tend to underperform their
benchmark averages.
Mutual funds cannot be bought
or sold during regular trading
hours, but instead are priced just
once per day.

Types of Investment
Insurance/ Endowment policies
An endowment policy is a savings
and life assurance policy for an
agreed period, the minimum
term being 10 years.
Example: with profits endowment, low cost
endowment, friendly society plans, low start
endowment, annuities



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