Investment function of the economic entities – Risks and opportunities

Karadjova, Vera and Dicevska, Snezana (2014) Investment function of the economic entities – Risks and opportunities. Horisons International Scientific Journal Series A, Social and humanitarian Sciences.

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The latest economic crisis that has hit the world economy left more or less repercussions on almost all national
economies. Economic policies are now faced with developing strategies to overcome consequences and to
intensify economic development. The realization of the economic development has a multidimensional character
and multiplicative effects. Investments are the key category in direction of overcoming the stagnation indicators
in certain economy areas. They represent an economic category that converts free funds and excess cash
(savings of households and firms) into tangible and intangible capital assets, that means investments are
conversion of savings into equity funds. The need for investment requires differentiation of the real estate versus
financial estate, first of all for understanding investments in financial instruments and effective diversification of
the economic entities portfolio. Analysis of investments for its part necessarily requires reviewing of the ratio
and correlation between the undertaken risk and the expected return on investments as one of the criteria for
assessing the investments efficiency. Regardless of the form of long-term investments, there is a need for their
planning and evaluation of the effects.
Having in mind different risk types arising from the economic entities investment function, this paper elaborate
two most common subtypes including: the risk of investing in securities, and the risk of investing in real
investment projects (corporate risk). This type of risk is the possibility or probability for any economic entity to
suffer adverse material - financial effects due to changes in the prices of securities in its portfolio or because of
depreciation on real projects that are invested. Various economic entities have different exposure to this risk
kind, primarily due to: the type of the economic entity and the scope of its involvement in operations with
securities and investments in projects, the role and the position of the entity on the financial markets; the
portfolio quality and differentiation (government and municipal securities, securities or projects in more or less
risky companies, etc.). Usually risks that make direct connection with portfolio risk are credit risk, liquidity risk
and interest rate risk.
Key words: development, investment function, portfolio risk, securities, corporate risk, investment
projects, financial markets

Item Type: Article
Subjects: Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions: Faculty of Tourism and Hospitality
Depositing User: Mr Bojan Sekulovski
Date Deposited: 06 Nov 2017 12:27
Last Modified: 08 Nov 2017 12:38

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