UNIVERSITI TEKNOLOGI MARA

FUNDAMENTAL FINANCIAL MANAGEMENT (MAF253)

ASSIGNMENT 1 (OBE)

INSTRUCTION TO STUDENTS:

1. Answer all questions.

2. Submit answers in MS Word template by 12 noon, 29 June 2016 (Wednesday) and email
a copy to respective lecturers:
 Emelin Abdul Wahid – emeli459@johor.uitm.edu.my
 Mohamad Albar Bakar – moham008@johor.uitm.edu.my
3. No copying of answers directly from any sources (books or peers). Marks will be
deducted.

Question 1
Differentiate the following types of investments and cite an example of each:

a. debt and equity securities.

b. short term and long term investment.

(10 arks)

First of all we look at the definition of these two type of investment. Debt is financing
the company by borrowing money and not giving up ownership while equity securities is
issue more share of common stock to an investor. These two type of investment are needed
to expand the business and the decision must be made with fact and data of the company

.. All the buying and selling of stock is equity investment. They were all conduct on
regular trading exchanges. Sometimes all stock market have the potential to be volatile
and facing a slope of share values. These up and down prices are effected by the outer
causes which is social, political, governmental or economic issues on their own country
of the corporation. The stability of the company is rely on those causes. They can affect
the company name and the company value. These Taking higher risk on the equity
investment can bring a very higher return. To make these equity investment more
effective, the company need a proper plan by monitoring the investment or doing an
extra research .The equity investment actually deliver higher turnover rate compared to
bond portfolio.

Debt investment is an low risk investment and a lower potential return .This
investment experience up and down movement of stock market between high and lows,
thus making them less volatile than common stocks. The transactions are trade on over-
the-counter or OTC. Bond is the popular item for investment and also mortgage
.Mortgages investment are secured as collateral. From past events that both bond and
mortgage markets have been exposed to far fewer significant changes in price than
stock. If the company is liquidated, the bondholders are first to be paid.
B.

LONG TERM INVESTMENT SHORT TERM INVESTMENT

The risk that long term investment is
volatility, the fluctuation of financial
market an cause investment to lose value
Diversification which means spreading
assets among different types of
investment to reduce risk
The risk for short term is may be subject
to purchasing power risk its mean the risk
that investment’s return will not keep up
with inflation.
Short selling is where an investor sells
share of stock that they don’t intent to buy
them back later at a lower prive

Question 2

Describe the structure of the overall parties involved in the financial environment. Explain the
role played by financial institutions and financial markets.
(4 marks)

The parties involved is

A. Financial managers
B. investors
C. financial market
D. financial institution

The role of financial market is easy place for savings and their path of money to
productive uses.it is also the place to get a good price for investors for their securities.it also
provide the liquidity to securities where investors can investing their money at will through
financial market .lastly, it can lowering the cost of transactions without spending to much on
information needed

The financial institution is institution that provides financial services. They provide
services such as depositing, contract transactions such as insurance and funds and lastly
investing .

Question 3

Classify the role of:

 a. government
b. business and
c. individuals

as net suppliers or net demanders of funds

(9 marks)

The government are the net demanders of fund because they usually borrow more
than they save.

The individuals is as the net suppliers for financial institution because they save more
than borrow.

Question 4

Differentiate between individual investors and institutional investors.

(2 marks)
INDIVIDUAL INVESTORS INSTITUTIONAL INVESTORS
They do not benefit from the tax exempt Very benchmarking oriented and focus on
status their ranking

(Total: 25 marks