Investment means the management of funds in economic, cultural and social projects, with the aim of achieving a modern capital entry, with the aim of raising capacities in production or modernization and the return of old capital.
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Where Investment can be divided into several types, including:
– In terms of means: There are direct and indirect investments.
– In terms of economic motives: government investment, ie, state investment. There is private investment, which is known as private sector investment, in addition to foreign investment, which is known as foreign investments, which are considered important sources of financing for economic development projects.
Best Investment Strategies
The Investment decision is one of the most important and dangerous decisions adopted by the bank’s management. The bank’s Investment portfolio contains a variety of [[Legitimacy] Dealing in the stock market: the rule of dealing in the stock exchange] securities]: namely:
1. Direct Investments
The Bank is involved in the establishment of projects from the outset, participating in the study of its economic roots, promoting its ideas and contributing to its shares. Thus, the Bank contributes to the revitalization of the stock market by participating in the addition of new projects and attracting new investors to the market.
2. Investment in government securities
The bonds are offered by the State for the purpose of financing certain projects, rather than borrowing from abroad. This type of bond is guaranteed as it is guaranteed by the State and the risk level is low if it is almost non-existent. Compared to other securities.
Shares are divided into the following:
a. Ordinary shares
The ordinary stock may be defined as a security with nominal value and a market value that may be completely different from nominal value. This security represents an instrument evidencing the right of the holder or owner to own part of the assets of the enterprise and to obtain it after all the debts and obligations of the entity .
Ordinary shareholders have a set of rights to receive part of the profits of the company on terms determined by the company, such as the requirement to achieve profits, the company’s decision to distribute profits, and the right to elect the members of the board of directors and the authorization of their representatives in the exercise of the right to vote , As well as the right to access and review the records and books of the company.
B. Preferred Stock
The preferred stock is a security with nominal value and a market value. The holder is entitled to rights or privileges that exceed the prescribed rights and privileges of the ordinary shareholder. Preferred shares have the advantage of receiving profits before the ordinary shares. The preferred shares also have a percentage of profit, On the one hand, bonds on the other hand are similar to ordinary shares by giving their owners the right to vote and owning part of the company’s assets. The bonds are similar on the basis that they have a fixed cost and may be limited in duration.
The bond can be defined as: a security with nominal value, market value, rate of return on the coupon and maturity date, and the face value of the bond is the fixed value written on the face of the bond, the value paid by the borrowing entity under the bond to the owner of the bond according to the agreed bond amortization schedule .
The bonds are characterized by the stability of periodic returns. It may be government bonds issued by the state and put forward for subscription to obtain funding to pay the budget deficit or finance some projects, such as treasury bills. It may be non-governmental and is issued by businesses and is relatively at risk of non-payment higher than government bonds and has a higher yield than government bonds.
Investment objectives in Commercial Banks
The banks seek to carry out investment operations to achieve many objectives, the most important can be summarized briefly below:
A – Achieving additional return to banks: The banks to employ some of the surplus funds have after holding the necessary funds to meet the expected withdrawals of depositors, as well as to meet the requests of borrowers, in multiple areas of investment rather than leaving them idle without operating, and this gives them profits allowing them to expand the performance New banking services, and cover some of the costs they incur.
B- Strengthening liquidity in banks: Banks are able to secure their liquidity situation by keeping cashable reserves. Securities of various types can easily be converted into cash in a short time. Banks with available securities can support their liquidity situation and provide some through borrowing from the central bank to secure these securities.
C. Bank risk exposure to crises: Banks can, by holding securities portfolios, meet the risk of exposure to crises. Some of these securities can be sold as soon as possible in the event of a financial crisis and thus a part of the loss.
D – Achieving the National Economy: Banks contribute to the financing of the economic development plan and meet the needs of government spending through the subscription of government securities. It also contributes to economic development through the subscription of shares of new companies that are offered for public subscription.
Factors affecting investment policy in commercial banks
Factors Affecting Investment Policy in commercial banks
There are many factors that determine and affect in some measure the investment policies of commercial banks. These factors include:
1. The size and structure of the deposit: The longer the deposits are stable and the length of their time, it gives the bank greater freedom to employ these precursors in long-term financial investments, but if it is unstable it means that the bank to follow a policy consistent with the structure of these deposits, and in this case The Bank focuses on investing in short-term securities.
2. Legislative Constraints: The policies and legislations that are drawn up and issued by the state affect the investment policies of the bank, such as determining a maximum percentage of the bank’s ownership of shares of joint stock companies.
3. The State of the Stock Market: The policy of financial investment in commercial banks depends to a large extent on the effectiveness of the stock market. Through this market, securities are exchanged in regulated markets, including the stock exchange, which allows commercial banks to diversify their investments and reduce the volume Risk, as well as liquidity.
4. The size, quality and diversity of securities offered: The greater the volume of securities issued, the quality and quality of securities issued, the more unrestricted investment policies will lead to diversification of investments to reduce the risk of investment and the formation of an effective investment portfolio.
5 – Efficiency and experience of the Department of financial investments in the bank: to form a portfolio of investment requires reliance on the expertise and skills of high efficiency so that it can achieve the greatest return possible in the least risk possible.
6 – The philosophy of management of the bank: The philosophy of management is the direction of banks in the use of funds in various investments.