Accounting (Year 12) - Financial Institutions
What are finance perspectives?
Finance perspectives in our view, refer to considerations that a business (or an investor) may consider when assessing their finance options. There are four key factors when considering an investment/finance option.
Maturity - How long will I be able to access our money?
Maturity is the time taken for the investment to produce its ideal returns. For example, a 1-year term deposit takes 1 year to mature. If there is no fixed time, the business often sets a maturity period to which it expects to see its ideal returns.
Liquidity - How quickly can I convert my investment into cash?
Liquidity is the time taken for an investment to be converted into cash if required. For example, shares are highly liquid as they can be sold on the share market at any time, although the price received from selling shares is not guaranteed.
Interest Rate/ Rate of Return - How much money will I make from this?
The rate of return is the percentage of return on the initial investment. By comparing rates of return, businesses can easily choose investment products that will maximise returns. Some investment decisions, such as shares, do not provide a guarantee on a rate of return.
Security - What will I get back if the investment goes bad?
Security considers the relative risk of investments. Investment decisions that could offer higher rates of returns also offer lower security. Many finance decisions offer guarantees where if the business cannot repay the debt, they must offer an alternative asset instead - for example, if a mortgage goes bad the bank receives ownershipofo the house.