Learn: Commerce - Topic 3 Investing

what is an investment?

when money is spent so as to gain a profitable return

what do businesses invest in?

-machinery

-factories

-other firms

-their own workforce

what do individuals invest in?

they invest their savings in order to achieve some future goal

what do governments invest in?

-roads

-education

-railways

-justice system

-armed forces

why do governments invest if they don't gain a profit?

it helps to ensure a prosperous, competitive nation with an increased standard of living.

what are 2 ways to finance an investment?

1. personal savings - most people save for smaller investments

2. borrowing - people take out bank loans for larger investments

what are advantages and disadvantages of saving for an investment?

advantages:

-you don't have to pay interest on a loan

disadvantages:

-it takes time to save enough

-you may have extra costs

what is a fixed interest rate?

rate that stays the same for the whole loan period

what is a variable interest rate?

a rate that moves up and down depending on the financial market

what is a share?

buying units of ownership in a company (shareholder). as a comapny's share value rises or falls, so does the value of the shareholder's investment.

what is a dividend?

a share of the company's profit (usually yearly or half-yearly).

what is a stockbroker?

a stockbroker has direct access to the market and buys/sells for a small fee (brokerage).

what is diversification?

investing across a range of companies spreads the risk.

what is an income and expenditure account?

a continous, ongoing record of income earned and money spent during the previous week.

what is a debenture?

a long-term loan issued by a company to raise money, repaid over a fixed period at a fixed interest rate.

what is an unsecured note?

similar to a debenture, but it is not secured against a businesses assessts, presenting greater risk

why is a denture safer than an unsecured note?

because a debenture is secured against a company asset while an unsecured note isn't.

what is superannuation?

a compulsory savings account funded by your employer, who pays 12% of your income to the account

what is cryptocurrency?

a digital-based finance, traded within the virtual world.

bitcoin?

seen as a desirable investment due to its limited production - keeping the value of each coin high as fewer new coins are introduced.

identify 3 reasons why crypto is a high-risk investment.

1. prices can rise or fall dramatically within a short period

2. many crypto providers are unlicensed meaing you may not be protected from platform fails

3. it can be stolen and is very hard to recover

what is ethical investment?

choosing to invest only in companies or organisations whose products, policies and practices align with your own beliefs and values.

what is rate of return?

the profit you recieve on your investment, expressed as a percentage of the original investment.

describe growth assests.

shares and property, generally provide a higher rate of return over long periods but are volatile and are higher risks in short term.

describe defensive/income assests.

government bonds and term deposits, usually provide a lower return but are lower risk, value does not change drastically in the short term.

how do you calculate rate of return?

what are the three main investment records?

1. the contract note

2. dividend statements

3. CHESS holding statement

how can personal circumstances impact investments?

illness, changes in family situations, or losing a job may mean funds need to be withdrawn, or contributions need to stop.

how can economic circumstances impact investments?

the business cycle affects wages, spending, production, interest rates and unemployment

what are the 4 key actions?

manage - monitor and record your profits and losses

avoid - remove the chance of loss entirely

reduce - diversify so not all your eggs are in one basket

transfer - hand responsibility to a financial manager, adviser or broker

what is the role of the financial services industry?

they provide individuals and businesses with tools, advice and guidance to manage financial resources. they also ensure transactions are processed accurately and in accordance with laws, and assist in identifying, evaluating and mitigating risks.