CHAPTER 23 POWERPOINT PRESENTATION

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CHAPTER 23 POWERPOINT PRESENTATION

  1. 1. CHAPTER TWENTY-THREE INVESTMENT MANAGEMENT
  2. 2. INVESTMENT MANAGEMENT <ul><li>TRADITIONAL INVESTMENT MANAGEMNT ORGANIZATIONS </li></ul><ul><ul><li>Security Analysts play a key role and rely upon information and reports from </li></ul></ul><ul><ul><ul><li>economists </li></ul></ul></ul><ul><ul><ul><li>technicians </li></ul></ul></ul><ul><ul><ul><li>market expert </li></ul></ul></ul><ul><ul><li>Investment Committee is advised by the analyst to create </li></ul></ul><ul><ul><li>An Approved List of Securities </li></ul></ul>
  3. 3. INVESTMENT MANAGEMENT
  4. 4. INVESTMENT MANAGEMENT FUNCTIONS <ul><li>FIVE STEP PROCEDURE: </li></ul><ul><ul><li>SETTING INVESTMENT POLICY </li></ul></ul><ul><ul><li>PERFORMING SECURITY ANALYSIS </li></ul></ul><ul><ul><li>CONSTRUCTING A PORTFOLIO </li></ul></ul><ul><ul><li>REVISING THE PORTFOLIO </li></ul></ul><ul><ul><li>EVALUATING THE PORTFOLIO </li></ul></ul>
  5. 5. INVESTMENT MANAGEMENT FUNCTIONS <ul><li>SETTING INVESTMENT POLICY </li></ul><ul><ul><li>DETERMINE THE INVESTMENT OBJECTIVE </li></ul></ul><ul><ul><ul><li>estimate the client’s level of risk tolerance </li></ul></ul></ul>
  6. 6. INVESTMENT MANAGEMENT FUNCTIONS <ul><li>PERFORMING SECURITY ANALYSIS </li></ul><ul><ul><li>Security Selection: A 2 Stage Procedure </li></ul></ul><ul><ul><li>STAGE I: forecast </li></ul></ul><ul><ul><ul><li>expected returns </li></ul></ul></ul><ul><ul><ul><li>standard deviation </li></ul></ul></ul><ul><ul><ul><li>covariances </li></ul></ul></ul><ul><ul><ul><li>identify optimal portfolio </li></ul></ul></ul>
  7. 7. INVESTMENT MANAGEMENT FUNCTIONS <ul><li>PERFORMING SECURITY ANALYSIS </li></ul><ul><ul><li>Security Selection: A 2 Stage Procedure </li></ul></ul><ul><ul><li>STAGE II: Asset Allocation </li></ul></ul><ul><ul><ul><li>strategic </li></ul></ul></ul><ul><ul><ul><ul><li>refers to how a portfolio’s funds would be divided, given the manager’s long-term forecasts from Stage I </li></ul></ul></ul></ul><ul><ul><ul><li>tactical </li></ul></ul></ul><ul><ul><ul><ul><li>given short-term forecasts, who will assets be allocated at any one time </li></ul></ul></ul></ul>
  8. 8. REVISING THE PORTFOLIO <ul><li>REVISING THE PORTFOLIO </li></ul><ul><ul><li>Use Cost-Benefit Analysis </li></ul></ul><ul><ul><ul><li>transaction costs should be examined since they complicate the management decision </li></ul></ul></ul><ul><ul><ul><li>portfolio revisions must be weighed against the cost of revision particularly with regard to transaction costs </li></ul></ul></ul>
  9. 9. REVISING THE PORTFOLIO <ul><li>REVISING THE PORTFOLIO </li></ul><ul><ul><li>SWAP METHODOLOGY </li></ul></ul><ul><ul><ul><li>a cost saving method which involves exchanges of asset rather than purchases or sales </li></ul></ul></ul><ul><ul><ul><li>TYPES OF SWAPS: </li></ul></ul></ul><ul><ul><ul><ul><li>Equity </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Interest Rate </li></ul></ul></ul></ul>
  10. 10. REVISING THE PORTFOLIO <ul><li>REVISING THE PORTFOLIO </li></ul><ul><ul><li>SWAP METHODOLOGY </li></ul></ul><ul><ul><ul><li>The Equity Swap: </li></ul></ul></ul><ul><ul><ul><ul><li>The Agreement </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>one party agrees to pay the other a variable-sized cash payment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>the other party agrees to a fixed-sized cash payment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Results in a restructured portfolio without incurring any transaction costs </li></ul></ul></ul></ul>
  11. 11. REVISING THE PORTFOLIO <ul><li>REVISING THE PORTFOLIO </li></ul><ul><ul><li>SWAP METHODOLOGY </li></ul></ul><ul><ul><ul><li>The Interest Rate Swap </li></ul></ul></ul><ul><ul><ul><ul><li>The Agreement </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>one party pays the second a variable-sized stream of cash based on the current level of an agreed-upon interest rate (e.g. LIBOR) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>second party pays the first a fixed-sized payment stream based on the interest rate at the time of the Agreement </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Results in a restructured portfolio without incurring any transaction costs </li></ul></ul></ul></ul>
  12. 12. THE MARKET FOR SWAPS <ul><li>THE MARKET FOR SWAPS </li></ul><ul><ul><li>The Market </li></ul></ul><ul><ul><ul><li>Is unregulated for the most part </li></ul></ul></ul><ul><ul><ul><ul><li>no government agency responsible for it </li></ul></ul></ul></ul><ul><ul><ul><ul><li>privacy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>each party must pay close attention to the solvency of the other party </li></ul></ul></ul></ul><ul><ul><ul><li>Swap Banks are the heart of the market </li></ul></ul></ul><ul><ul><ul><ul><li>they act as dealers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>arrange for creation and dissolution of agreements </li></ul></ul></ul></ul>
  13. 13. <ul><li>END OF CHAPTER 23 </li></ul>

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