Answer to Question #260052 in Management for Ritu

Question

Sunaina has qualified her Investment Banking certification and has applied for a job with an Investment bank. As a part of preliminary round of interview, she is supposed to answer the following questions

 a. Factors that impacts the investment decisions of a person. 

b. Difference between the two main classes of financial instruments that an investor uses in their portfolios

Answer 1

A. Factors impacting investment decisions of a person include:

• Time horizon. One of the most important considerations in investing is how long a person has have before they will need to get the money they are investing back.
• Available money to invest. Having a diversified portfolio is an important way to reduce risk.
• Tolerance for risk is also crucial to remain sustainable in the market.

b. Classes of financial instrument portfolios

They can be divided according to an asset class, which depends on whether they are debt-based or equity-based. Debt-based financial instruments last for one year or less. Securities of this kind come in the form of T-bills and commercial paper. Cash of this kind can be deposits and certificates of deposit (CDs). On the other hand, securities under equity-based financial instruments are stocks. Exchange-traded derivatives in this category include stock options and equity futures. The OTC derivatives are stock options and exotic derivatives.