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A Taxonomy of Financial Assets

A Taxonomy of Financial Assets . Fixed income or debt Money market instruments Bank certificates of deposit Capital market instruments Bonds Common stock or equity Derivative securities. The Investment Process. Asset allocation Choice among broad asset classes Security selection

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A Taxonomy of Financial Assets

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  1. A Taxonomy of Financial Assets Fixed income or debt Money market instruments Bank certificates of deposit Capital market instruments Bonds Common stock or equity Derivative securities

  2. The Investment Process • Asset allocation • Choice among broad asset classes • Security selection • Choice of which securities to hold within asset class • Security analysis

  3. Markets are Competitive • Risk-Return Trade-Off • Efficient Markets • Active Management • Finding mispriced securities • Timing the market • Passive Management • No attempt to find undervalued securities • No attempt to time the market • Holding a highly diversified portfolio

  4. The Players • Business Firms– net borrowers • Households – net savers • Governments – can be both borrowers and savers • Financial Intermediaries • Investment Companies • Banks • Insurance companies • Credit unions

  5. The Players Continued • Investment Bankers • Perform specialized services for businesses • Markets in the primary market

  6. Recent Trends—Globalization • American Depository Receipts (ADRs) • Foreign securities offered in dollars • Mutual funds that invest internationally • Instruments and vehicles continue to develop (WEBs) • Exchange Traded Funds (ETFs)

  7. Figure 1.1 Globalization: A Debt Issue Denominated in Euros

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