Financial Institutions

Short-Term and Long-Term Perspectives

 

When making investment decisions, businesses need to consider a variety of factors such as:

 

Maturity

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

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

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

Security considers the relative risk of investments. Investment decisions that could offer higher rates of returns also offer lower security. For example, unsecured notes offer a higher interest rate than debentures as unsecured notes are secured by a business's assets. 

 

 

 

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