Investment Criteria - An Important Tool For Decision Making
General investment criteria in detail:
Security
* Reliability of the debtor
* Quotation risk
* Foreign exchange risk
* Political risks
Liquidity
* Liquidity depends on sufficient returns in the values that are to be acquired or sold. Established values at important stock exchanges are usually very liquid.
Cash Profitableness
* Interest payments
* Dividend payments
* Other payments
* Increases in value
Strain ratios:
Security/Profitableness
* Increased net yields are always connected with increased risks. For the achievement of a highest possible degree of safety a tendentious low net yield must be put up with.
Liquidity / Profitableness
* Keeping assets liquid or in cash can cause a conflict with the profitability, as liquid assets rarely usually are profitable.
Investment Period / Dispensability / Purchase on Credit
* It is crucially fundamental for which period you want to invest. Is the capital completely dispensable in this time or must it be disposable quickly if necessary? Will the investment be done with the own capital or with borrowed capital that must be returned at a fixed time?
Own Tax Status
* In principle dividends and interest are taxable. The amount differs depending upon the country in which the client is domiciled. Profits on exchange are tax free from the beginning or after a certain retaining period.
Objectives
* Is it private or business capital?
* Is an age or a maintenance security intended with this investment?
* Does the investment serve for the increase of the enterprise yields?
* Is the investment to be returned within a fixed period of time?
* Is the invesntment not subject to the above mentioned criteria?
* If not, are there other criteria to be considered?
* Is fixed income needed?
Basis risks:
Risk of the Economic Situation
* By the economic situation risk we mean the danger of course losses, which result from the fact that the investor does not consider the economic development at the moment of his investment decision and that he holds an investment in securities at the wrong time in an unfavourable economic situation.
Inflation Risk (Purchasing Power Risk)
* The inflation risk describes the danger that the investor suffers a financial damage in consequence of a monetary depreciation. The actual value of the existing assets as well as the material yield, which is to be gained with the asset, is subject to the risk.
Country Risk
* Country risk means that a foreign debtor cannot carry out his interest and repayment achievements within the prescribed period or not at all despite of his own solvency, due to missing ability and readiness for transfer of his residence country.
Foreign Exchange Risk
* Investors are exposed to a foreign exchange risk, if they hold reading securities in a foreign currency and if the foreign exchange rate decreases. By the revaluation of the domestic currency (USD, sfr or euro) the foreign asset positions evaluated at this currency decline in value. The same applies with a devaluation of the foreign currency. thereby the foreign exchange risk is added to the quotation risk of foreign securities - even if the securities are traded at a domestic stock exchange.
Liquidity Risk
* The liquidity of an investment describes the possibility for the investor of selling its net assets at any time at prices corresponding to real market conditions. This is usually the case if an investor can sell his securities, without that (based on the usual market sales volume) an average large order to sell leads to noticeable exchange rate fluctuations and can only be completed at a clearly lower course.
Psychological Market Risk
* Very often irrational factors influence the general trend of prices at the stock exchange: Tendencies, opinions and rumors can cause an important course decrease, although the earnings and the future prospects of the enterprises have not unfavourably changed.
Risk with Credit-Financed Securities
* Lending on securities is a possibility, how the investor can remain capable of trading in securities and stay liquid. Depending on the kind of the security the deposit can be lent at a different amount. With securities at fixed interest the loan to value ratio is on principle higher than with shares.
Fiscal Risks
* Depending upon the country there are many different fiscal relevances. Here is the double taxation of foreign investments of special importance. So a fiscal risk can result if the yields are to be paid duty on abroad or if the charge of detained taxes on source is not possible in full height and only on request, owing to a double taxation agreement in the homeland. The tax on source usually consits of taxes on interest, dividends, which are raised abroad in the context of the limited tax liability without special assessment by deduction for tax.
Influence of Additional Expenses with the Investment
* The higher the costs are, the later the expected chances of profit can be realized, since these costs must be covered, before a profit can appear.
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