by Salmaan Taseer

Finance, Credit, Investments – Economical Categories. Modern Interpretation

Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.

The definition of totality of the economical relations formed in the process of formation, distribution and usage of finances, as money sources is widely spread. For example, in “the general theory of finances” there are two definitions of finances:

1)            “…Finances reflect economical relations, formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage”. This definition is given relatively to the conditions of Capitalism, when cash-commodity relations gain universal character;

2)            “Finances represent the formation of centralized ad decentralized money sources, economical relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also provision of the conditions of the widened further production”. This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. Also, formation and usage of the depreciation fund which is the part of financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year), but to the distribution of already developed value.

This latest first appears to be a part of value of main industrial funds, later it is moved to the cost price of a ready product (that is to the value too) and after its realization, and it is set the depression fund. Its source is taken into account before hand as a depression kind in the consistence of the ready products cost price.

Second, main goal of finances is much wider then “fulfillment of the state functions and obligations and provision of conditions for the widened further production”. Finances exist on the state level and also on the manufactures and branches’ level too, and in such conditions, when the most part of the manufactures are not state.

V. M. Rodionova has a different position about this subject: “real formation of the financial resources begins on the stage of distribution, when the value is realized and concrete economical forms of the realized value are separated from the consistence of the profit”. V. M. Rodionova makes an accent of finances, as distributing relations, when D. S. Moliakov underlines industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution and usage of the funds of money sources, that comes out of the following definition of the finances: “financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related with the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests”.

In the manuals of the political economy we meet with the following definitions of finances:

“Finances of the socialistic state represent economical (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, rising the material and cultural level of the people and for satisfying other general society requests”.

“The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations”.

As we’ve seen, definitions of finances made by financiers and political economists do not differ greatly.

In every discussed position there are:

1)      expression of essence and phenomenon in the definition of finances;

2)      the definition of finances, as the system of the creation and usage of funds of cash sources on the level of phenomenon.

3)      Distribution of finances as social product and the value of national income, definition of the distributions planned character, main goals of the economy and economical relations, for servicing of which it is used.

If refuse the preposition “socialistic” in the definition of finances, we may say, that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective “socialistic”, in the modern economical literature. We may give such an elucidation: “finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of formed economical product and national wealth for formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests”.  in this elucidation of finances like D. S. Moliakov and V. M. Rodionov’s definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern “distribution and redistribution of the value of created economical product, also the partial distribution of the value of national wealth”. This latest is very actual, relatively to the process of privatization and the transition to privacy and is periodically used in practice in different countries, for example, Great Britain and France.

“Finances – are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by intercalculations between the economical subjects, movement of cash sources, money circulation and usage”.

“Finances are the system of economical relations, which are connected with firm creation, distribution and usage of financial resources”.We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Finance – it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person”. “Financial theory consists of numbers of the conceptions… which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place”.

These basic conceptions and quantitative models are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people’s requests; the subjects of economical activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.

Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit’s existence in the consistence of finances.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its “characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners’ rights”.

N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economical relations, which lean upon cash flow and credit.

Let’s discuss the most spread definitions of credit. in the modern publications credit appeared to be “luckier”, then finances. For example, we meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower”.

This is the traditional definition of credit. In the earlier dictionary of the economy we read: “credit is the system of economical relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent”.

In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: “credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation”.Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

We meet with the following definition if “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:

“Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower”.

Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan’s movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.

Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Though, at the same time we must distinguish two resembling concepts: loan and credit. Loan is characterized by:

·         Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

·         The loaning of money may bear no interest;

·         Any person may take part in it.

With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

·         One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

·         It may not bear no interest (if the assignment doesn’t foresee something);

·         In it creditor is not any person, but a credit organization (at the first place, banks).

So, a credit is the bank credit. To our mind, it is not correct to use “credit” and “loan” as the synonyms.

Banking crediting is the union of relations between bank (as a creditor) and its borrower. These relations touch upon:

a)      Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);

b)      Its opportune returning;

c)      Getting percentage rate from the borrower for using the sources under his/her disposal.

The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin “credo”, from which comes the word “credit”, means “trust”).

From the position of circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. Though, from the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation. The banks analogously needed concentration of the important own capital for influxing the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. So notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

From the essential position of expressing economical relations of finances and credit, we meet with cardinal distinctions between these two categories. Which mostly expressed by the distinction of the movement forms notwithstanding they are returnable or not. Finances express relations in the aspects of distribution and redistribution of social product and part of the national wealth. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.

Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories. Though in the in economical texts and practice, it is very uncomfortable to use a termini, which consists of three words. Also, “unloading” with an information hardens greatly its influxing into the circulation even in the conditions of its strict substantiation and thoroughness.

In the discussing context we consider:

1)      wide and narrow understanding of economical category of the finances;

2)      discussing finances in narrow understanding under general traditional meaning;

3)      discussing finances, as funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – in complete meaning.

Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.

We have established a new termini – “finance-investment sphere” (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments’ economical categories.

Let’s sum up middle results of discussing new concept – “finance-investment sphere” and discuss its investment consisting parts.

The concept “investments” was brought into the native economical science from the West. In the Soviet economical science they for a long time used in the place “investments” the termini “capital placement”, which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this termini in its concept is identical to the “investments”, consequently it is possible to use them as synonyms. Though the termini “investments” and “investing” have the advantage towards the termini “capital placement” from linguistic and philological points of view, because they are expressed with one word. This is not only economical and comfortable in the process of working with the termini “investment” itself, but also it gives an opportunity of termini formation. More concretely: “investment process”, “investment domain”, “finance-investment sphere” – all these termini are much more acceptable.

Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). Though we must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.

Let’s discuss termini – “investment” and “capital placement’s” usage in the economical literature.

Investments are placement of funds into the main and circulation capital for the purpose of getting profit. “Investments in material assets – are the placements of funds into the mobile and real estate (land, buildings, furniture and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments”.

We don’t meet with the termini “investments” in the earlier economical dictionary, but we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble”. For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, material-technical and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

-          economical development according to the key directions to the concentration;

-          providing high rates of economical growth;

-          raising an economical effectiveness, which is expressed:

a)      by growing the throw off of the production and national income for every lost Ruble;

b)      by fulfilling the branch structure of the investments;

c)      by improving their technological structure;

d)     by optimization of their further production structure.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments  – the expenses of gathering production and industrial means and increasing material reserve”. In this definition current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept-advanced capital is corresponding. the advancing may be realized in the money, natural-material and informational forms.

Except the termini “investments”, there are two more termini related with the investment. They are shown below.

 “Human capital investment” – any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers’ education, health and raising the mobility of the working forces”. It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.

“Investment commodity, capital goods – a capital.”

In the official manuals of political economy of the reformation time the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones”. In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves): a) creating new ones; b) widening; c) reconstruction; d) renewing. Also, the concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place”.

You’ll meet below the definitions of investments from “the course of economy”: the investments are called “placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”.

They apportion investment commodity, to which belong industrial and nonindustrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing reserves and others.

“They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for compensation of renewal till the level of before industrial usage, wearing out and repairing of the basic means. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”. Depreciation is not a compensation resource of wearing the basic funds out, but it is the purposeful financial source of such resources.

Human capital investment is “a specific kind of investments, mostly in education and health protection”.

“Real investments are the investments in the economical branches and also, they are kinds of economical activities, which provide influxing the increases of real capital, that is increasing material values of the industrial means”. We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

“Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital, but they help getting profit, consequently at the expenses of changing the course of the securities in the time of speculation, or distinguishing the course in different places of sell and purchasing”. We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”

In the “economical course” quoted before long and short-termed investments are separated. Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to “one month or more” investments. If we get such conditioned criteria, that we can call the investments which overcome the terms of some months, long-termed ones, which is very doubtful and we don’t agree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensative and long-termed compensative investments:

-          less then 6 months – quick compensative;

-          from 6 months up to the year and a half – middle termed compensative;

-          more then the year and a half – long termed compensative.

We stopped at the definition of the investments in the capital work “economical course” for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

We’ll return to the discussion the definition economical category of “investments” in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economical literature.

What conclusions may be made according the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite deeply, concretely and thoroughly defined the concept of “investments”, different definitions in the economical literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph, even if it has a title investment, as an economical category, there is given only the definition, concept of investments. But, as the Academician Vasil Chantladze explains, “a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of much essential characteristic features represents only one, and essential in it is only – definition”.

But the categories are much wider; it is “a key, the most fundamental concept of every science”. Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, for expressing the definitions of a subject and realize their specific peculiarities and economical relations of a material world.

Our goal is exactly to substantiate investments – as an economical category and also, as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category”.

In the process of defining the investments, it is important to take in mind the sides of resources, expenses and incomes, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage.

Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments”.

As we’ve mentioned above, not long ago, in the well-known Soviet literature the concepts of “the placement of funds” and “investments” were accepted to be the synonyms and concerned to be investment of sources for further production of the main funds and formation of the turnover funds. We meet with such understanding of the concept of “investment” (here, they separate three types of the investment expenses: investments in the basic capital of investments, investments in the house building and investments in the reserves) in the modern economical publications and it is mostly used on the macro level during a statistical analyze of economical processes. In this concrete occasion investment is the category of reserve.

According to the aspect of flow the investments may be discussed in the process of analyzing industrial activity, when it is necessary to learn the variety of the economical relations related with the investments’ further production and formation, sources, objects and subjects, that is on the micro level.

Main distinguishing criteria of different methods of approach towards the concept of “investment” the aspect of prolonging of measuring this showing. Is it possible or not to measure the investment showing separate from the term factor (the norm of gathering, the volume of capital property, the reserves of production and so on). If it is possible, then it is the category of reserve, and if it is not, then it is measured in the section of time and belongs to the category of flow.

Thus, investment, as an economical category, is quite consuming concept. It concerns the elements defining the regularities of function and regulation of the investment domain, privately:

First, resources and values put into the industrial activity. Here, investments may be realized in the following ways:

1.      mobile and real estates (buildings, constructions, furniture and other material values);

2.      cash sources, purposeful bank accounts, credits, shares and other long-termed securities;

3.      owners rights according to the author’s rights, licenses, Now-How, experience and other intellectual values;

4.      the rights for using land and other natural resources, also other owners rights.

Notwithstanding any forms, investments are results of capital gathering. Leading investments – regularity of gathering defines its volume and dynamics and, generally, whole investment activity.

Second, the incomes ruling volume and dynamics of the resource investment. Herewith, we must underline the circumstance, that the process of getting profit, the regularity of its creation, isn’t a constant of the concept “investment”. The factors of production (also the conditions of exploitation of capital values) and selling (market conjuncture), also the process of capital gathering is the leading and important condition only for the investment formation. Though, we underline again, that the process of getting and distributing the income is a significant component of the investment activity.

The transformation of investments makes the basis for the investment activity, which concern the following circles: resources – investment (expense) – capital property – income. The practice of realization such circles of the investments transformation is exactly the investment activity (investing). The investment activity, except the investments itself, concern motivation and stimulation of the capital gathering, relations of capital gathering and ruling, also, totality of the defined level of profitability on the capital and the goals of capital growth.

According to the mentioned above, in the definitions of the investment as economical category sometimes the needed exactness and clearness is not felt, some categories of the wealth are represented tightly enough. For example, real prosperity is bounded only by material estimation. This leads us to the unvalued investment resources in the era of transformation industrial society into the investment one; also to the recognition of yet uninvolved valuable scientific researches in the production, securities turned into speculation objects, and unreal property in the consistence of one and the same parts; to there equalization. On the basis of the made analyses, we can cite a wide definition of the investments together with the leading categories.

Investment resources – are values, invested into this or that project in this or that kind for the purpose of getting profit beginning with material ones, finished with cash.

Kinds of the prosperity are equal to the kinds of the investment resources and is divided into real and cash, consequently into financial resources.

Real investment resources concern all kinds:

-          natural resources;

-          labour resources;

-          material resources, the usage of which is possible in the economical development (buildings, constructions, vehicles and furniture, transport and communication means and so on;

-          investment resources (in the widest understanding, that is from scientific-research and experimental-construction works, till the education potential of the society and till all kinds of gathering useful information, written about every possible, that is typing and electronic bearer).

Cash, consequently financial resources concern every cash means for usage in this way in definite conditions or directed in the sort of investments.

Cash means (resources) turn into the financial resources in the case of structuring of funds of purposeful destination foreseen for investments of this or that kind.

After defining investment resources we can make wide definition of the investments as economical category.

Investments – are the placements of real, financial and intellectual resources into the projects, the fulfillment of which leads us to getting the increases from real wealth, in the material and informational forms. It is followed by a cash (financial) prosperity or its increases (at the expenses of the distribution of the cash means).

As an economical category, investments express economical relations, which are created in the ways of using and formation of the investment resources between the participants of the investment process for the purpose of improving and widening of the enterprise.

Related Investments Articles

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Ways of turning cash means into investments. Sources belonged to he investments in the objects of industrial and nonindustrial spheres, mostly come out in the initial form of cash means. Turning of these latest into the investments may be provided in different ways. The easiest way takes place in the case, when industrial subject manages and owns definite means, uses them for widening and improvement of production and also for creation of nonindustrial objects. In the resembling type savings of those persons, which start activities with own savings turn into investments.

Though, in other cases turning savings into investments is a difficult process. The fact is, that most part of the population has no opportunity to provide investments straight into the production, because for this they must have manners of enterprise administration, and of course, own definite minimal amount for this or those reasons. Part of the enterprise profit also does not turn into the investments.

Herewith, form one side, population and some enterprises own free cash sources, from another, many enterprises need additional means for their investment program realization. Transmission of sources is realized by the channels of financial market, where owners of cash means appear to be the distributors of investment capital, and those persons, who influx sources – consumers.

Basic channels for transmission of cash means from distributors to consumers. Depending on how transmission of cash means is realized from distributor to the consumers, we can point out two basic channels at the financial market. First is the market of banking credits. Banks accumulate temporarily free cash means of the juridical and physical persons. Of course, they pay definite percents at the influxed sources and later give credits to the borrowers (to those ones, who provide real investments) for high percent. Thus, process of money movement from the owner, to the borrower is realized with the help of a bank.

In many cases such way of transmission of the cash means answers to the interests of the cash owner. Though this latest takes too little percent from the bank, but thus he/she avoids the risk of not returning of money from the borrower. Except security, banking deposits are high liquidate, as the depositor can take own amount out and also investment of cash means is reachable even for the smallest depositors (owners of the savings).

Bank pays very little percent to the depositors comparing with those it takes from the borrowers, that’s why it is natural, that the distributor has a desire to invest capital exactly into the relation with these borrowers.

As to the capital consumers (borrowers), it is advantage for them to get in direct touch with distributors. The fact is that getting banking credit is often followed by great difficulties. For example, often the bank doesn’t lend credit in the term, which is needed by the borrower; the bank may not have total amount requested by the borrower, for realization of the large-scale projects and so on. All these lead us to the large-scaled realization of attracting free cash sources together with the banking credit by capital consumers in other way – by emission of securities.

Somehow this way answers the interests of distributor of investment resources and their consumers. Distributors of resources (owners of savings) often are able to invest their sources in relatively advantage conditions, then banking deposits are and for longer period of time. Quite simple procedure of placement of sources is realized in the way of selling and purchasing of securities. Also, if securities are characterized by quite high level of liquidity, then the investor can invest wasted sources by selling own securities if necessary.

From the point of investment resources consumers’ view emission of securities has priority relatively to the banking credits. Hey (capital consumers) are given opportunity to influx cash sources from a lot of distributors of capital and accumulate large amount of money. Also, sources may be influxed for long period of time, sometimes for indefinite terms, if the affair touches upon securities.

Thus, market of banking credits and market of securities in the modern conditions appear to be necessary rings for investment processes, basic areas, with the help of which savings are turned into investments and are used for development of the production.

As said above, depending at objects of capital investments they separate real, financial and intellectual investments (drought 5.7.). Under real investments they mean placement of sources (capital) into creation of real assets (as of material, so immaterial ones), which are in touch with the realization of operative activities of economical subjects, salvation of their social-economical problems. Under financial investments they mean placement of capital into different financial instruments, in the first place into the securities.

Financial investments either have speculative character, or are oriented towards long-termed investments. They recognize to be the form of financial investment placements of sources into shares and securities, also into the loan banking deposits.

Financial investment oriented towards long-termed placements of sources is related with strategic goals of participation in the management of the investor’s object, in which the capital is invested.

Fictive capital. Concepts of real and financial investments are in close touch with the ones of real and fictive capital. In the economical literature they usually mean securities under fictive capital. Real capital is placed into production and securities serve for the title of property, which represent this capital. Financial capital is “the capital which exists in the face of securities, bring profit to the owners. Different from real capital, which is placed into various fields of the industry, fictive one has no inner value and is not considered to be real wealth, that’s why it has no function in the process of capitalist further production.and, according to this, we want to pay attention to the following: for every separate owner securities (fictive capital) represent valuable, which brings to him absolutely real income. Though, from the point social capital securities don’t represent real prosperity. Growth or reduction of the value of functioning securities in the society may take place independently from real capital. According to this, securities appear to be a fictive capital.

Real capital of the society is grown at the expense of investments into the real assets, while fictive capital may be increased without financial investments, at the expense of course value of the securities emitted earlier. A significant example of the process of fictive capital growth is process of emission of the so-called produced securities. Here they don’s take into account real investments, but they give rights for purchasing securities already produced or emitted earlier. In this case financial investments are followed by the growth of real capital of the society.

Though, to our mind, this subject is not so easy, as it seems. The fact is that growth of the share course is realized not itself, but by the fact that the effectiveness of using real capital is growing.  The growth of course value of the enterprise shares expresses the fact, that the market gives too high estimation of the given enterprise.

Herewith, we can make a conclusion, that fictive capital is not a real wealth; it provides marketing estimation of real capital of the society in every given period of time. Imagine that we have two enterprises with absolutely identical real assets, though one enterprise uses these assets better and works more effectively. It is evident, that course value of the shares of this enterprise is higher, then those of other ones. That’s why fictive capital is being grown not itself, but expresses the position of real capital. Size of fictive capital is nothing but the marketing value of the real capital, the title of which is fictive capital considered to be.

Herewith it is difficult to agree with, that “fictive capital acts no function in the process of capital further production”. Securities (a fictive capital) play important role in the process of further production while turning of the savings into investments. A fictive capital (securities) makes income for its owners. Exactly the desire of making profit makes the owners of the savings to invest sources into securities. Amounts gathered by the issuerare used for creation and purchasing of the real assets, accordingly the growth of the volume of production takes place.

Movement of financial investments reminds us the movement of loan capital. As K. Marx showed us, in the process of movement of loan capital one and the same capital amount appears in the degree of capital-owner and capital-function. Income of the functional capitalist is divided into two parts – into the loan percent and the income of the clerk. Under the conditions of weak development of the joint-stock company free capital was put into the production in the form of loan capital. Real investments in the production are realized at the expense of own and loan capital from the functioning capitalists.

By realization of the joint-stock form of the enterprise the character of the investment process is essentially changed. In this case, they mean the joint-stock company may realize real investments at the expense of own sources (indivisible profit) or at the expense of banking credits. So, that they don’t apply for the financial investments.

Though, it is different in the case of joint-stock company. While foundation of the joint-stock company the founders are enter property, cash means, and intellectual property into the initial capital. Every deposit is estimated in the cash form and every founder purchases a definite package of shares for appropriate share, which is entered into the initial capital of the society. Amount of one and the same investments turns into real or financial investments. the process of real capital growth is followed by the growth of fictive capital. Herewith, in this case real investments can not be realized without share emission, i.e. without financial investments.

In the case of growing initial capital of the joint-stock company emission of new shares is taking place, then it is followed by real investments. Thus, financial investments are considered to be necessary attributes for the investment process. Real investments are impossible without financial ones. Real investments take completed face by realization of financial investments.

Widening of the production may be realized, also by the borrowed sources, which are influxed with the help of emission of the loan securities. Consequently, even in this case the process of real investments is realized with the help of financial investments.

We have different situation, when we apply for secondary market of the securities. If the investors purchase shares for already activated enterprise, then sources wasted for purchasing shares already are investments. But these sources get to the previous owner of the shares that’s why growth of the real capital of the enterprise doesn’t take place. It is same with the purchasing of securities of any kind at the secondary market. In this case (if the course of securities are not grown) the growth of fictive capital of the society doesn’t take place. Only the distribution of fictive capital among the members of society takes place. Thus, financial investments, which are realized in the forms of purchasing securities at the secondary market, are considered to be relatively independent form and it is not directly related with the process of real investments.

According to the said above, we can make the following conclusion: financial investment is the connecting ring of turning of the savings into real investments. With its help the savings get into the production; at the same time they can appear to be relatively independent form of the investments. Foreseeing the fact, that today joint-stock company is considered to be quite spread, organization-legislative form of the enterprise; we may come to conclusion, that financial investments and security market play very important role in the investment process on the way of turning savings into real investments.

Intellectual investment definition. Investment market is a difficult system consisted of various structural elements, among which there is a numerous connection. Scheme (in the drought 5.8.) represents a clear example about structure of the world investment market.

As seen from the matter, investment objects are divided into financial and material (real) assets. Each of them has quite diversified structure.

Financial assets concern financial and payment obligations of every kind, which are basically created by the economical agents while their work. This is cash money; deposits existed at the current accounts, short-termed loan obligations, for example, shares and other financial documentation, which prove the property of right at the capital or setting arrangement at the movement of financial resources.

Material assets are: movable and unmovable property, lend, buildings, precious metals, commodities of long-termed usage, material valuables or inventory having short-terms of produced service and so on.

Modern structure of investment, in the first place, expresses significant surplus of the financial assets at material ones (accordingly 57.7% and 42.3%), ant second, in the structure of financial assets itself securities, short-termed obligations and accounts having investment character occupy more and more bigger place.

Correlation of financial and material assets of the investment market may be expressed by the coefficient of financial interrelation. Idea of involving such coefficient belongs to R. Goldsmith, who is the author of the works written about the structure of national wealth and financial systems of developed countries. This scientist in the second part of 50s and beginning of 60s worked out the method of calculation of the coefficient of interrelation. He calculated this coefficient as conformity of total financial assets with the size of material assets received by deducing of the country net foreign assets. Net foreign assets show conformity of foreign debt of the given country and its residents with the one, which are owned by the foreign country and its residents towards this county. Citizens, companies and other juridical persons have right to have accounts abroad, to give credits to the foreign citizens and to have property abroad. Also, they are possible to get in debts themselves towards the foreign citizens. If the size of foreign property and financial wealth of the country resident surpluses debts towards the foreigners, then net foreign assets appear to be positive size and on the contrary.

According to the investment nature, which basic kinds of the investment market – financial and material ones, or the real investment markets in the modern conditions may be added by the market of intellectual investments. This latest functions in the way of licenses, engineering-consulting service, Now-how, scientific processing, sales and purchasing of projects and others.

As in the marketing economics, so at the transmitting stage, alternative variants of using resources, investment resources among them. The principle of inter changing touch upon the realized investments as in the material forms, so in the human capital. It is well known that under the modern conditions investment in the human capital is very important and gives a large profit. This is stated in many economical works.K. Sax and F. Lauren point to the investments into the human capital. They notice that investments into the human capital have a great importance for marketing economics.Nowadays a theory of intellectual capital makes foundation to the realization of investments into the human capital.The authors of this theory concern, that intellectual capital is a difficult category. It is wider than the human capital, as in it information is considered to be the independent industrial resource.Investments into the intellectual capital differ from the ones realized into the human capital. It also concerns the elements of structural capital, which means investments realized into the furniture, computers, programs, patents and trade marks. On the basis of intellectual capital theory a concept of social partnership was formed. This conception leans upon the investments placed into the social capital. Social capital theory means relations of mutual help and development of trust relation in the separate groups or readiness of participation in the unions. More educated and qualified workers have more possibilities for formation of social capital and economical macro-system. On the basis of investments realized subjective leaders of attractive investment surrounding is formed in the social capital, that influence significantly upon the development of intellectual investment market.

Intellectual investment market has the following peculiarities:

First, intellectual investment market is the consisting part of service market. It provides realization of specific commodity by straight contracts between producers and consumers. Herewith, trade mediating is not the exception. Though there is a principle distinction between mediating and consuming commodities at the market of intellectual investments. Analyzes of different researches show, that in the conditions of transitional period growth of the share of mediator structures in the section of consuming commodity of massive request take place in Georgia. The mediator is not requested to have a special knowledge, only initial information is enough. Of course, mediating at the market of intellectual investments requires high qualification level of the firms’ specialists. The mediators themselves, which unite “producer-consumers”, are not many. Herewith, mediator service at the market of intellectual investments is different form analogue service of the market of massive request commodities in the equal conditions by quality and effectiveness (at the expense of reducing expenses of the interested sides).

Second, the market of intellectual investment influences greatly upon capital movement and the market of labor forces.

Third, intellectual investments are protected by the state from the foreign competition, also by export and import of final result of using intellectual investments. Functioning of the market of intellectual investments cannot exist without protection of rights at the objects of intellectual property.

Fourth, for entering international market by inner market organizations and intellectual investments additional are not needed.

Fifth, formation of market values is specific at the results of using intellectual investments.

Values of intellectual investment products have not direct connection with the work spent on it. The value of intellectual investment product is defined by what it gives by using in the production process. Herewith, value of intellectual investment process is defined as expression of effect received by this product usage by money.

Market value at the intellectual investment product is formed as agreement one, by using two prices (of seller and purchaser). The purchaser may apply for the fact that a profit received from using intellectual investment product, minimally, is to compensate the expenses made by the seller for selling this product and also expanses of the buyer for its realization. The seller doesn’t often sell the intellectual investment product, but transmits only the right for its using. Thus, agreement value on this production is close to the buyers’ one in practice.

Realization of intellectual investments at the market may be provided in the following forms:

-      by transmitting rights for using licenses, Now-How, commodity sighs and so on;

-      by selling-transmission of Now-How, technological experiences and so on. Agreements on such acts of sell and purchase from license agreements are different by the fact, that the owner of Now-How doesn’t refuse its selling, but doesn’t agree with its patenting;

-      by providing engineering services;

-      by transmission of technologies, in the way investment partnership, within the bounds of which takes place not only sell and purchase, but in other ways of its distribution consultations, qualifying specialists, transmission of droughts and technological exchanges.

Engineering is one of the basic forms of realization are the market of intellectual investments. It means providing different engineering-consulting service on the commercial basis. They divide engineering service into two groups: 1) service related with preparing production process; 2) service related with provision of normal continuing of the process of production and its realization. To the first group belong: a) pre-projecting service (social-economical researches; topographic processing and planning of location; researching grounds; searching for the minerals; technical-economical statement of project and so on); b) projecting service (preparing general plan and recommendations; estimation of expenses made on its exploitation beforehand; preparing technical specialists and so on); c) further service of he project (preparing contracting documentation; organization of auction; estimation of suggestions; making contracts; managing building process; making and granting certificates about finishing work, making technical conclusion about building and so on); d) special service (researching about utilization, various juridical procedures and so on). To the second group of engineering service belong: service related with the managing and organization of the production process, service related with the examination of the object; consultations in the financial questions; service related with the production realization (researching the conjuncture of the market, advertisement organization), service related with the involving the system of informational provision and so on. Engineering consultations, in the conditions of deficit of high-qualified personnel, can provide intellectually the investment process, help firms to rise effectiveness, fasten circulation of the investment resources.

Portfolio investment market is the consisting part of the financial investment market. By forming society of share-holders and with the help of financial institutional investors, their activity at the financial investment market support significantly accumulation of independent cash sources in the country, also attracting of foreign investors, fastened circulation of financial investments, effective insurance for financial-investment risks and so on.

For clearing investment motivations up and defining levers is state influence we thing advisable discussion of peculiarities of the investment circulation in the process of further production of material (basic and turnover) and financial capitals.

Investment circulation in the process of investment activity is realized in the following basic directions:

investments in the material assets (production of basic and turnover capital); investments in financial assets; investments in the intellectual valuables.

Let’s discuss investment circulation in the process of further production of the material assets (basic and turnover capitals). Its every element may be divided into movable and immovable properties. Furniture, mechanisms, turnover capital belongs to the elements of movable physical capital and elements of passive part of basic capital (buildings, equipment, industrial infrastructure) – to the unmovable one.

Further production of the movable physical capital is realized in the industry, and of unmovable ones – in the building. Investment activity may be realized in the way of showing of unmovable property, furniture and other elements of physical capital at the market, or in the case of absence of needed commodity, in the way of their production (building).

Investment activity may be realized at the expense of different sources: own, borrowed, attracted sources for investments, budgetary assignations. Structure of sources depends at organization legislative forms of active and newly formed enterprise. Investments may be displayed as in the cash, material forms so in the face of property rights and intellectual potential. Foreseeing said above, investment circulation in the further production of a physical capital might be represented in the following way:

Economical essence of the given chain of transformation exists in the following: investments in different for (cash, productive, commodity) are placed into the objects of investment requests for industrial activity. After this a process of transformation of investments into industrial factors takes place. Thus materialization of investments takes place, which appears in the face of rising value of investor’s capital property.

Exactly the new transformation of capital value finishes investment circulation in the Soviet economical literature. They departed artificially stage of formation of new capital value and stage of their functioning, which defines real level of income of profitableness of these valuables, and finally the period of self-compensation of investments.

As main goal of investment are making profit, investment circulation definitely concerns a period of exploitation of purchased capital valuables till the moment of financial recourses, by which investments in the capital production are compensated.

In this case, production, which is produced in the form of investment commodity, is realized at the markets of different investments (real estate, furniture, materials and other markets).

What is the distinction between investments and investment commodity, as they coincide with each other in the material form and ability of making income? To our mind, basic distinction is in the “universality” degree of investments and investment commodity. Any investment commodity for realization at the markets in the future becomes a factor of production in concrete material or cash forms. Material transformation of a capital doesn’t mean further production, it may be even threadbare – morally and physically, and investments, as they are movable form of cash capital – may make endless and permanent profit. To our mind, this makes investments different from the investment commodity.

Investments into the financial assets take place in relation with their profitableness norms. Income, according to the different financial assets, is divided into dividends (kind of industrial income) and percents. This is defined by what capital they represent – industrial or loan.

A process of investments into the financial assets may be represented in the following way:

First, intellectual investment market is the consisting part of service market. It provides realization of specific commodity by straight contracts between producers and consumers. Herewith, trade mediating is not the exception. Though there is a principle distinction between mediating and consuming commodities at the market of intellectual investments. Analyzes of different researches show, that in the conditions of transitional period growth of the share of mediator structures in the section of consuming commodity of massive request take place in Georgia. The mediator is not requested to have a special knowledge, only initial information is enough. Of course, mediating at the market of intellectual investments requires high qualification level of the firms’ specialists. The mediators themselves, which unite “producer-consumers”, are not many. Herewith, mediator service at the market of intellectual investments is different form analogue service of the market of massive request commodities in the equal conditions by quality and effectiveness (at the expense of reducing expenses of the interested sides).

Second, the market of intellectual investment influences greatly upon capital movement and the market of labor forces.

Third, intellectual investments are protected by the state from the foreign competition, also by export and import of final result of using intellectual investments. Functioning of the market of intellectual investments cannot exist without protection of rights at the objects of intellectual property.

Fourth, for entering international market by inner market organizations and intellectual investments additional are not needed.

Fifth, formation of market values is specific at the results of using intellectual investments.

Values of intellectual investment products have not direct connection with the work spent on it. The value of intellectual investment product is defined by what it gives by using in the production process. Herewith, value of intellectual investment process is defined as expression of effect received by this product usage by money.

Market value at the intellectual investment product is formed as agreement one, by using two prices (of seller and purchaser). The purchaser may apply for the fact that a profit received from using intellectual investment product, minimally, is to compensate the expenses made by the seller for selling this product and also expanses of the buyer for its realization. The seller doesn’t often sell the intellectual investment product, but transmits only the right for its using. Thus, agreement value on this production is close to the buyers’ one in practice.

Realization of intellectual investments at the market may be provided in the following forms:

-      by transmitting rights for using licenses, Now-How, commodity sighs and so on;

-      by selling-transmission of Now-How, technological experiences and so on. Agreements on such acts of sell and purchase from license agreements are different by the fact, that the owner of Now-How doesn’t refuse its selling, but doesn’t agree with its patenting;

-      by providing engineering services;

-      by transmission of technologies, in the way investment partnership, within the bounds of which takes place not only sell and purchase, but in other ways of its distribution consultations, qualifying specialists, transmission of droughts and technological exchanges.

Engineering is one of the basic forms of realization are the market of intellectual investments. It means providing different engineering-consulting service on the commercial basis. They divide engineering service into two groups: 1) service related with preparing production process; 2) service related with provision of normal continuing of the process of production and its realization. To the first group belong: a) pre-projecting service (social-economical researches; topographic processing and planning of location; researching grounds; searching for the minerals; technical-economical statement of project and so on); b) projecting service (preparing general plan and recommendations; estimation of expenses made on its exploitation beforehand; preparing technical specialists and so on); c) further service of he project (preparing contracting documentation; organization of auction; estimation of suggestions; making contracts; managing building process; making and granting certificates about finishing work, making technical conclusion about building and so on); d) special service (researching about utilization, various juridical procedures and so on). To the second group of engineering service belong: service related with the managing and organization of the production process, service related with the examination of the object; consultations in the financial questions; service related with the production realization (researching the conjuncture of the market, advertisement organization), service related with the involving the system of informational provision and so on. Engineering consultations, in the conditions of deficit of high-qualified personnel, can provide intellectually the investment process, help firms to rise effectiveness, fasten circulation of the investment resources.

Portfolio investment market is the consisting part of the financial investment market. By forming society of share-holders and with the help of financial institutional investors, their activity at the financial investment market support significantly accumulation of independent cash sources in the country, also attracting of foreign investors, fastened circulation of financial investments, effective insurance for financial-investment risks and so on.

For clearing investment motivations up and defining levers is state influence we thing advisable discussion of peculiarities of the investment circulation in the process of further production of material (basic and turnover) and financial capitals.

Investment circulation in the process of investment activity is realized in the following basic directions:

1.   investments in the material assets (production of basic and turnover capital);

2.   investments in financial assets;

3.   investments in the intellectual valuables.

Let’s discuss investment circulation in the process of further production of the material assets (basic and turnover capitals). Its every element may be divided into movable and immovable properties. Furniture, mechanisms, turnover capital belongs to the elements of movable physical capital and elements of passive part of basic capital (buildings, equipment, industrial infrastructure) – to the unmovable one.

Further production of the movable physical capital is realized in the industry, and of unmovable ones – in the building. Investment activity may be realized in the way of showing of unmovable property, furniture and other elements of physical capital at the market, or in the case of absence of needed commodity, in the way of their production (building).

Investment activity may be realized at the expense of different sources: own, borrowed, attracted sources for investments, budgetary assignations. Structure of sources depends at organization legislative forms of active and newly formed enterprise. Investments may be displayed as in the cash, material forms so in the face of property rights and intellectual potential. Foreseeing said above, investment circulation in the further production of a physical capital might be represented in the following way:

Thus, whole system of investment market forms total investment-market space. In this space a market of financial investments is filled by real and intellectual investment market.

Lamara Qoqiauri

Real Member of Georgian Academy of Economic Sciences

and New-York Academy of Science;

Doctor of Economics; Professor

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by Foreign and Commonwealth Office

Dynamism of the requests and distributions appear to be common currents for developing investment market, under the conditions of free competition. Possibility of realizing these currents din real economical reality depends on the quality of the market monopolization. Under the conditions of reducing competition, when the elements of the market essentially lose their flexibility, it appears on the face of tendencies.

Analyzing of the discussed currents means appearing forming and consisting mechanisms of balance at the investment market and also action of the factors conditioning changing of the investment requests and distributions.

Factors of the investment requests. Leaning upon wide theoretical and practical researches provided in the western countries we may conclude, that the investment request is characterized by frequent changing and it is formed by numbers of complexes of factors, among which we may separate macro- and microeconomic ones.

An important macroeconomic showing influencing upon the investment requests is the volume of national production. It gives rise to the growth or reduction of the investment requests under other equal conditions. Changing of accumulations of people and cash resources also work in this direction. Herewith, not absolute sizes of these showing, but their conformed meanings: the equality among accumulation and usage within the bounds of the used national product are of conclusive importance.

It is known, that in the market economy they consider savings to be the part of income not used for needs. They are sources for the investment resources. The size of the real resources, which are in the economy at every concrete stage of its development, depends on the fact what priorities make basement to the distribution of the production – current usage or accumulation.

Changing of the norm of savings and investments. Changing of the norm of savings influences essentially upon those ones, which are in progress in the structure of social product. Reducing norms of savings gives rise to the growth of usage and reduction of the investment level. That is the reason for capital exclusion overcomes investments. This ruins balance in the economy. Reduction of savings is also followed by the reduction of the volumes of production, investments and usage. Recovering of other balances on other technological level takes place.

Increasing norm of aid gives rise to another script of economical development, which is characterized by degradation of the usage level and growth of the investment one. Increasing investments gives rise to the accumulation of a capital in the industry after some discussion. The level of accumulation and investments are being increased until achieving optimal meaning from the point of economical firmness. This provides higher level of usage with the help of increasing the volume of savings.

As the experience of the developed countries shows, that they used to achieve high level of average live-stock income when they used to direct important part of social incomes towards savings while realizing structural transformation. There is quite firm positive relation between the share of final product used for investments and that of average live-stock income.

Distribution of incomes of people among savings and usage provides analogue influence upon dynamics of the investment. A well-known statement of J. M. Kains about increasing savings together with increasing received income hasn’t been proved by statistic researches provided in this sphere. Conclusion about absolute size during usage and distribution of incomes on savings are shown in the works of J. Duisenberg and F. Modillion.Growth of investments is achieved while increasing share of savings in incomes. Herewith, the role of savings, as investment resource depends greatly upon the influence of such factors, as “increasing preference of cash, development (insurance, social insurance) of those institutional savings, basic part of which are not under the disposal of enterprises interested in capital”.

Factors influencing upon the investment requests. The expected rate of inflation influences upon the investment requests. From the most common point of view, fastening inflation rates devaluate those incomes, receiving of which are expected from the investments. Inflations also influences negatively upon the volume of investments with numbers of directions, in the way of impeding economical growth in the long-termed aspects, with the help of reducing processes of widening accumulation and production, devaluating industrial funds of every functional form, inflation tax of profit, also by outflow of cash resources to the sphere of circulation from that of production, reducing real profit and savings, by decreasing the capacity of native market and others. That’s why, growth of inflation rates and inflation expectation hinter activation of investment activities and looses the stimuli of widening investments.

Formation of the investment request under the conditions of market economy is related with the functioning of financial market, which supports the movement of investment capital and also profit made out of the invested assets.

Financial credit system forms basic capital of the investment requests by accumulating separate investment savings. In such case important role is played by the banks, which may use not only savings, but also cash resources being in circulation and emission. Conjuncture of stock and credit markets defines conditions of the investment placements and influences upon the volume of the investments. With the help of incomes made out of investments, which turn into the dividends and percents at the financial market, further production of potential investment request, which is realized in the way of reinvestment, takes place.

Percentage rate and investments. State taxation and percentage policies influence essentially upon the dynamics of investments. Their regulation appears to be the lever of the state reaction at the investment request. Reduction of the profit taxation under the equal conditions gives rise to the growth of the share of accumulation used for investments.

Loan percentage rate defines the value of the loan resources for the investments. Growth of the percentage rate strengthens motivation of savings and at the same time reduces and makes the investment unprofitable. While falling of the loan percent, investments appear to be more profitable, that’s why reduction of loan percentages rate gives rise to the growth of investment and on the contrary. Herewith, the fall of percentage rate, as a factor of activating investments, has its own borders, as at the definite stage of this fall economical agents prefer to save money in more liquid cash form (J. M. Kain’s the Theory of Liquidity), and thus they widen outflow of resources to the sphere of security speculation. This provokes a problem of optimal definition of the percentage rate under the given period, as an excessive fall or growth of percentage rate gives rise to the loss for the investment activities. Thus, the influence of percentage rate upon the investment requests is not completely similar.

Norms of profit and investments. Definition of the influence of percentage rate upon the investment requests might not be complete without comparing it with the norms of the expected profit. Herewith, it’s is to be noticed, that not nominal, but real rate of the percentage rate plays essential role for making investment conclusions, as the factor of inflation spoils real orienteer. While comparing loan percentage rate with the norms of profit it is possible to receive undesirable results.

It is to be remarked, that the profit plays double role in the investment activity. It may be discussed as an investment sources and, at the same time main goal of investing. Modern researches, which are related with the salvation of difficult problems of mathematical formalizing of the level and dynamics of the investment request, also manifesting definite basic parameters of the investment requests, prove the existence of definite relation between the profit and investments. For example, according to thw analyzing provided by the economical consulting counsel under the USA president, the most important macroeconomic factors influencing upon the dynamics of investments are:

-      Net profit and depreciation assignments calculated towards gross domestic product;

-      The norm of profit towards depreciation assets (calculated by conforming total profit to the depreciation assignment and foresee changing of the paid loan percent with the size of the depreciation assets by the current restoration prices);

-      Profit norm at the share capital by calculation (calculated with conforming net profit to the waste restoration value of basic capital with the current prices);

-      Market price of the emitted shares towards restoration value of the assets (calculated by conforming total share capital to the waste restoration price of the assets with the current prices).

Investment functions and profit. Foreign researchers obtained definite investment functions by depending on the problems of analyzing, where one of the leading parameters of the investment changing are net profit, the dynamics of the profit norm or expected size of the profit. Investment functions may be represented in the following way:

Investment functions (6.1) and (6.2) characterize dependence of net investments to the volume of the ones of earlier period, accumulated basic capital and the size of net profit. According to the research goals, it is possible to fill them and leading such data into the consistence of parameters, as percentage rate at the long-termed loans of the banks.

In the investment functions (6.1) and (6.2) a special place is occupied by the parameter of basic capital accumulated in the economy, which are leaded into the investment equations of negative relations. It expresses the processes of accumulation and surplus accumulation of a capital during the economical cycle and their relations with the dynamics of the profit norm. This mechanism is expressed in the following: growth of the profit norm activates investment request and the growth of net investments that, in its turn, fastens the process of increasing basic capital. The growth of basic capital after the termed structure starts influencing in direction of overcoming profit norm that, in its turn, reduces investments and thus decelerates increasing rates of the basic capital. This reduction leads further separate growth of the profit norm in the economy that gives rise to the development of the following cycle. Thus the mechanism of investments in the capital provides generating of working conjuncture cycle and it makes one of the mechanisms of positive loopback.

Investment function (6.3) shows the model of investments, which begins from the size of the expected profit. They use data of stock-exchange quotation of the share rate of the companies for measuring expected profit. It makes current valuation of the future flow of the corresponding company incomes on the basis of stock-exchange data of securities. The difficulty of consisting aggregated data of stock-exchange quotation of the company shares gives conditions quite narrow sphere of using the given investment function – on the level of separate firms.

The norm of expected profit belongs to those factors, which influence upon investment request on the microeconomic level. We must also ascribe expenses of realizing investments, expectations, changing in technology and others to it.

Norm of the expected net profit is of significant importance in the system of microeconomic factors. This is conditioned by the fact, that exactly profit makes the motivation for encouraging realization of investments. Investors provide placement of their sources when they expect, that the profit made out of the investments overcomes their expenses.  The higher is the norm of net profit, the more is the investments request. Herewith, investment will be profitable only in case, when the expected norm of net income overcomes real rate of percents. Attracting loan resources loses its conception.

The enterprises compare the norm of expected net profit with the loan percentage rate either during using own resources. According to V. Repke, they invest profit in own firm when the level of profit made out of the investment appears to be higher during the loan percent. Otherwise they will be placed at the capital market.[1]

Thus, percentage rate is the criterion of investment effectiveness. Effectiveness of the investment project must not fall below the loan percentage rate. The percentage rate, which makes basis for evaluating the objects of capital placement of the capital of investment assets, does another important function. I. Fisher characterized percent to be the means for “actualization” of every other income, as the method of evaluating every income in time.

Other factors influencing upon the investment request. Following factor influencing upon investment request is the expenses for its realization. They foresee this factor during calculating the norm of the net profit expected from the investment project. The growth of expenses reduces the norm of the expected net profit and on the contrary. Herewith, as the important parts of the investments are of the long-termed character, they foresee time factor as well. In whole, the more are expanses and terms for their expiation, the less is the level of investment request.

Expectation of the industrial persons, who lean upon following requests, the volume of selling and predictions of profitableness also influence upon the volume of investments. Profit made out of the investments will depend upon the growth of these data. Herewith, the groth of optimal expectation gives rise to the growth of investment requests.

The largest profit is made out of the investments in the innovative production, which guarantee reduction of the expenses of enterprise, improvement of the production quality and growth of the expected norm of net profit. That’s why changing in the technologies makes the encouraging factor for the investment requests.

Thus, investment request is formed by the influence of the factors of various kinds and directions, which define their flexibility and dynamism.

Formation of the investment distribution has numbers of peculiarities. From one side, as the distribution of commodity, it is conditioned by such basic factors, as value and, also, not valuable determinants: expenses, fulfillment of technologies, taxation policy, expectations, the level of competition and others; from another, investment distribution is discussed to be specified distribution of commodity, as the investment commodity differs for its ability of making income. This defines characteristic peculiarities of the factor, which is being formed by the dependence upon the level of profitableness.

The norm of profitableness and investments. The norm of profitableness makes basis to the values of financial instruments, which support the movement of real capital. Market price of financial assets shows the quality of attractiveness of the placed sources in the investment commodity.

Percentage rate on deposit in the banking system, the size of which defines the home industry flows, influences essentially upon the investment distribution. Herewith, stock-exchange market and that of the loan capitals makes significant terms for stimulating investment distribution.

As during definite consisting of the investment distribution investment request is oriented towards the profitable assets, we conclude, that the volume and the structure of investment distribution influences upon the volume and structure of the investment request. Herewith, investment distribution is basic factor defining the scales of functioning of the investment market, as it gives rise to the changing of the existed requests on the investment commodity. The mechanism of loopback is not expressed so far. It appears only under the conditions of independent competition.

Achievement of the balance between investment request and distribution is possible only in the total scales of the investment market. Their equalization in the marketing system takes place only in the total scales. Working of the mechanism of the balanced prices doesn’t characterize only independent competitive market. This mechanism needs investment commodity and changing of prices on the capital on the basis of balancing request and distribution until there is dynamic balance at the investment market, i.e. until they achieve balanced prices on the investment capital and investment commodity and also synchronization of decisions about their sale and purchase.

The Mechanism of balanced prices. Influencing of the balanced prices upon investment market reflects the specifics of the investment commodity. As we have remarked, this is ability of making profit by the investment commodity. Striving for making more income with fewer expenses makes basement to the making decisions by economical subjects about investments. During definite structure of investment distribution the investors will prefer investment commodity, which guarantee maximal norm of profit at the invested capital under the conditions of minimal risk of investments. High market price of the investment commodity, which is conditioned by its profitableness, makes the impulse for directing important mass of the investment capital in these objects of investments. Relocation of the investment capital, in its turn, widens investment request on distribution of the given commodity that gives rise to the effect of rising price and the effect of increasing distribution under other equal period of time. While increasing distribution of the given investment commodity the market mechanism gives rise to the fall of their prices. That is why investment capital outflows to the more profitable spheres of the investment activities. Finally, the discussed process will be finished with dynamic balance at the investment market.

Herewith, balance under the conditions of pure competitive market means that according to the comparison of the expected level of he loan percentage rate and marginal effectiveness of the capital, decisions about investments give rise to the optimal distribution of the planned investments according to the perspectives of growing profitableness.

Thus, this balance is an ideal economical system, which is characterized with joint proportion of the investment resources and their usage, an optimal realization of economical interests of the subjects of investment activities.

Structure and reality of the investment market. The structure of investment market in the reality is far from the ideal model. Absence of pure competition reduces the dynamism of investment request and distribution, which is displayed only in the face of tendencies, also reduces possibilities of balancing them and, relatively, fixing prices at the balanced level. Potential participants of the investment activity have not equal possibilities at the investment market. They have distinguished possibilities for receiving investment commodity per market price. Large oligopolistic investors are in more advantage situation, then those, which are rivals to each-other.

Thus, investment market in real economical practice doesn’t play ideally the function of optimal distribution of investments. Though, this doesn’t exclude the need of abstract modeling of economical processes, as exactly this gives rise to the displaying of essential relations and currents, define conditions of balances of those elements, which make the totality of economical phenomenon according to the law of free competition.

Balance at the investment market appears to be partially macroeconomic one. Herewith, it also is essential condition for common economical balance. For example, in the well-known model of J. Hicks “ISLM” (“investments-savings-liquidation-money”)the balance at the investment market is the same as the balance of commodity market. That is why this model gained the name of the model dual balance of commodity and money markets.

The model “ISLM” reflects essential relation between investments and money markets. This relation, to our mind, is the most important peculiarity of the investment market.

It leans upon usage of total parameters for investments and money markets as basic macroeconomic characters of these markets. This is percentage rate and the volume of social production.

The balance at the investment market is achieved in case of equality of investments and savings. As we have already exclaimed, investment volume is defined by numbers of factors, though they state the relations to be researched during the economical dependence not by the totality of variables, but by functional unity of just some of them (this totality is considered to be the paribus of cetera).

They use Vsp (the volume of social production) and Pr (percentage rate) to be the endogenous variables of macroeconomic factors influencing upon investments. Remaining factors are considered to be the exogenous variables. In such case investment formula is represented in the following way:

Where, Iev is the part of the investments defined by exogenous variables.

IS curve expresses combination of the volume of national production and percentage rate, during which investments equal to the savings.

Financial mediators and capital market. Correlation of transformation of the investments and financial market defines essential role of this latest in functioning of the investment market. In the first place, it is reflected by the fact that the request of enterprises and firms appear in the financial resources of basic and turnover capital form. In this case distribution of investment commodity turns into the cash-credit form. It is represented in the form of family industry and the savings of firms, which are accumulated in the banking system and are granted by definite percent.

Following peculiarity of investment market is also evident. This is the existence of developed web of those financial mediators, which make realize connection between sellers and buyers of the investment capital. Financial mediators gather separate savings of the family industry and firms in the significant mass of the investment capital, placement of which takes place later between the users of investment.

The existed investment potential is concentrated in the institutions of banking system, which have special possibilities for using traditional cash resources and credit emission. Placement of the capital mobilized by financial mediators may be provided in the form of loans, emission of shares, purchasing bonds or other securities and so on.

Equality of a dividend and percent and investment request. The profit, received from this or that financial assets is divided into dividend and percent. This depends on what form they represent – industrial or loan. Wholly they reflect the norm of profitableness of the produced capital valuables. The equality of dividend and percent shows the structure of the investment request, its distribution between firms and banking system. This equality has the form of market price (rate) of financial instruments at the financial market.

For movement of capital valuables financial instruments fasten reaction of the prices on the changing of the norm of profitableness and thus they guarantee fast outflow. The size of their market price appears to be the indicator of the working conjuncture as a result of dynamism of investment activity. Thus, the mechanism of balanced prices at the financial market turns into the sharper forms of displaying.

Essential peculiarity of the investment market is the role that is played by the percentage rate on it. As we have shown, the size of percentage rate gives rise, in the first place, to the size of the savings of family industries attracted by the credit system, and from another, the norm of profitableness of investments. They evaluate even own potential resources of the firms with the help of percentage rate: if the expected profit is higher, then the percentage rate, they direct it to the investments, in other cases they place them at the financial market – in the form of deposits, purchasing securities and so on.

According to the said above, effective functioning of the investment market may be provided only under the conditions of developed financial market and firm banking system. It this case market foundation of percentage rate, equal conditions for investments in regional and branch aspects, attractiveness of long-termed investments and the level of regulated inflation make important conditions for interaction of investments and financial market.

Marketing mechanism cannot provide these conditions. State regulation must conform to the economical currents on the a basis of which market mechanism reacts on changing conditions, it must foresee prediction of various results of the complex of influencing activities, create conditions for realizing potential possibilities of market mechanism in the form of antimonopoly activities.

by International Monetary Fund

Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company _0165

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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company

Kuwait-China Investment D- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
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Kuwait-China Investment Forum, Beijing China

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www.SustainabilitySymbol.com
www.PeacePlusOne.com

Kuwait-China Investment Forum, Beijing China

- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
www.SustainabilitySymbol.com
www.PeacePlusOne.com

About the systemic approach. The systemic approach is the direction of scientific knowledge and the methodology of social practice, which is based on the discussion of the objects in systems. it is used as an instrumentarium, which directs the research to the substantiating the wholeness of the object, discovers various contacts in it and gathers them into the total complex.

The systemic approach in its essence is the concrete principles of the dialectical materialism, in the bounds of which, we can discuss the investment process the series of those operations (the kinds of activities), which is fulfilled at the beginning capital (the preface of the process). It increases the value and conditions a definite result (the exit of the process). It is possible to learn the investing process from the position of the systemic approach, because the investment process is an economical system and it has a preface – the complex position of this system (investment surrounding) and exit – the changes of the entering investments into the economical system. The result of investing process got at the exit, defines the development of the economical system, in which the process is going on, and gives in it rise to the rates of the economical growth.

Ruling the investing process. The investment process is realized by ruling. It is discussed to be such a strategy, which guarantees achieve maximum effectiveness and it leads every kind of activity to the maximal growth of the economical system. Ruling consists of the following active cycles:

1.  the analyze of the current position of the investment process, in which consists of: the analyzes of the investment attractiveness and investment business, satisfaction of the requirements for investments of the economical system;

2.  definition of the showing of volume needed by the investments and of the investment attractiveness, to which this volume is conformed;

3.  Working out activities which provide needed position of the systems’ investment attractiveness;

4.  The changes of the incomes in the investments of the economical system, which is provoked by the changes of investment attractiveness;

5.  Changing of the parameters of economical system at the investors’ expenses, which exists in the changing of the rates of economical growth.

Permanent realization of this cycle improves the ruling system of the investment process and increases the defectiveness of functioning of the economical system.

The realization of the systemic approach is situated in the analyzing the investment process not only in the horizontal section (the ruling subject – investment attractiveness – investor – investment business – the volume of the investment – investment object – ruling subject), but also in the vertical one (the world comradeship – country – region – field – manufacture – physical person). Such discussion reduces the quantity of repeated activity of the ruling of investment process and gives the complex theoretical picture of the investment process.

For preparing and realizing effective investment policy it is important to define clearly and simply the criteria of estimating the investment situation formed in the country, economical fields and regions; also working out methodological apparatus adequate to the economical regalia and its successive usage.

The investment process (that is the process of realizing investments) has every feature of the system: there always is in it a subject (an investor), object (investment object), the connection between them (investment in the purpose of getting income) and surrounding, in which they exist (investment surrounding). It is characterized with a special structure and the opportunity of an exact identification between other economical process. It displays its features as a result of interaction with other systems, protects a definite conception and reflects the points of view, aims and values of the subject of the investment process. Connection is the system-forming factor, because it unites all other elements into one whole (pic. 1). the systemic approach gives an opportunity of exhaustive description of the investment process essence and defines fully its basic concept.

The investment process is defined by the formed interaction about situating investments between the investment subject and object for getting income, also the realized investing influence from the side of subject and ruling organs upon the object; and changing of the conditions of investment surrounding.

Place of the investment process in  the system of social relations. The investment process doesn’t exist itself and it is always involved into the sphere of following level, that is to say that it must be discussed in the bound of the total approach – discuss the system in the sphere of the interconnections with other systems. This gives us an opportunity of describing the place and role of the investment process as in the separate sphere of the activity and also in the system of the social relations. Every subject is oriented towards the development and always demands the supplementing of resource and changing this or that feature. The orientation towards the supplementing this deficit with own forces, slows the economical growth, because it demands from the subject to provide amused activities and wasting the time the its basic resources on this. In the conditions of specialization, the reducing of own forces makes the subject search for the object, the features of which give him an opportunity of of filling the existed deficit with a minimal investments. The need of investments appears, when the potential of the chosen object does not satisfy the necessary criteria and needs a kind of outer participation for its development. The possibility of the investment development occurs when the resources owned by the subject and its features give the opportunity of needed influence of the object upon the demanded features of the object.

At the moment of fulfilling the investment, investor makes contacts with the concrete object. Under the investors influence the features of the investment object changes and then these changed features in the face of investment income influences upon the investor, changes its features, including – filling the resource deficit. After finishing the investment process, the subject and object begin new existence; consequently, the investment process gives rise to the diffusion of the object and subjects’ features.

The dynamic of the social development is defined by the development of separate spheres of the activity. If the revolutionary sudden changes of this or that sphere of the activity gives stimulus to the unseen before growth, this gives rise to the natural chain reaction of the development of connected to these spheres. If the evolution development of the spheres of activities takes place, its dynamics, as a rule, is defined by the least developed abilities. When the investments and investment income have different subject consistence, that is if they belong to the different spheres of activities, the various investment processes make these spheres inter penetrative. According to this, the logical ruled changing of their development dynamics take place. This provokes the natural chain reaction of the development of the interconnected spheres. Consequently, the investment processes give opportunity of making and keeping natural chain reaction of the interconnected spheres of the activities. These processes appear to be the fastening factor for the social development.

Showing the connections between the basic categories of the investment process give the opportunity of establishing dependence of the investment volume to the factors and conditions of the investment domain, that is the investment surrounding formed in the region.

The picture 1.4 may elucidate basic structural elements of the investment surrounding and the connections between them, which are shown in literature.

The interconnection of consisting comp

onents of the investment process. Such an approach reflects the most essential sides of the investment process, but doesn’t give us opportunity of taking in mind the influence of the current processes upon the investment surrounding and on the contrary – of the investment surrounding upon the investment process. That’s why we think important to discuss differently the interconnection of the consisting components of the investment process.

The investment attractiveness is a positive category in its context, and the investment risks participating in the process of forming this attractiveness – a negative one. That’s why it is important to turn the quantitative showings of the risks into the quantitative showings of the concept, which is essentially opposite to the concept of “the investment risk” during taking in mind the noncommercial investment risks, as a complex factor of the investment attractiveness. We must call such a concept (the antonym to the concept of the investment risk) “social-economical and economical security of the investors” or, in other words, investment security (consequently, on the macro-economical, regional, field and industrial level). The mentioned changing gives an opportunity of avoiding inter contrary influence upon the resulting showing – the investment attractiveness of two complex factors – the investment potential and noncommercial risks.

Exactly same way, every private factor of these generalized concepts have at the same positive quantitative [removed]with the help of the positive showing – for defining the final level of the field’s investment security), and also negative one (with the help of conceptually “negative” showing – for defining the final level of the noncommercial investment risks of the field).

The investment attractiveness of the social-economical system (SES) is defined the position of the investment potential and the level of the investment risk. The investment assets existed in the region – the real development of the investment business in the SES – is characterized with the intensity of the investments. It its turn, it is defined by the past, current and future investment assets. The past investment asset characterizes the intensity of the investments invested before and gives an opportunity of defining their future profitability, the quantity of the presumable competitor and the most profitable sphere for the capital-investment. The current asset of the investment defines the level of the system’s economical development and gives the opportunity for predicting the volumes of the additional investments and their possible profitability, also to define the position occupied by the investor in the market in the future. Future (expected) investment asset is the oriental for planning whole investment process: from the definition of future volume of the investments till ruling the investment surrounding of the SES – for getting the needed income flow of the capital. Analyzing of these three consisting components of the investment business gives the investor information about the level of competition ability at the SES investment market, also the tendencies of its development and the activities for reducing market.

The wholeness of the investment attractiveness and investment business makes the investment surrounding for the country, region, field, corporation (existed in the manufacture). Though it is important also to reflect reverse connection, that is the influence of the investment surrounding upon the investment business. For example, the current position of the investment surrounding defines the investor’s ideas and his/her activities towards future investments. Improving investment surrounding in the current period gives the stimulus to the development of the competition held between the investors for getting the rights for investment. Also it gives the stimulus to the competition held at the commodity and service market, which helps the lowing of the prices and raising the quality of the production. Parallel to these, the inflow of the investment resources takes place, which gives an opportunity for rational and effective distribution of the existed resources to the ruling organs of the regional development. It reduces the disproportion in the regional development, improves the living social conditions in the region, helps the development of the infrastructure and communications, changes the situation in the investment surrounding according to the demands of development of the regional economy.

The interconnection and subordination between the participating categories of the investment process is represented by the scheme shown in the pic. 1.5.

Taking in mind the peculiarities of the investment process, it mustn’t only be based on the usage of administrative-regulating activities, but also the usage of those economical models, which prove the necessity of this or that activity.

1.6. Subject – matter of investment process and its main stages

According to the said above, the investment process is the successiveness of the stages, motions and operations of the investment business provision. The concrete flow of this process depends on the investment object. Consequently, the division of the investment process into the stages is provoked by the kinds of the investments. We speak, of course about the real and financial investments.

The investment process consists of two main stages; they are (1) making decision about the investments and (2) Realization and exploitation of the investments. It is adopted to divide the first stage into several separate phases (under types), which characterize the real and also financial investments. The quantity of these phases may be different, but three of them are the most typical: a) underlining the goals of the investments; b) definition of the investment direction and c) selecting the concrete object of the investments.

Goals and directions of the investment. In the process of getting decision about the investments different goals are defined and reflected. The ascending goals are the formal ones, which are in the future used as the criteria of selecting investments.  The formal goals come from the strategical firmness of the investment.

Working out the strategical direction of the investment business is connected with the defining equality of this or that form of the investments on the concrete stage of the perspective period and also with the definition of the direction of investment business including its branch consisting part. The priority selection of the investment forms at this or that stage by the investor is provoked by a number of inner and outer factors.

The functional direction is the most important from the inner factors, those are the basic kinds of the investor’s (manufacture, organization) activities. For example, basic direction of the investment businesses for the institutional investors is investments into the securities. The manufactures of the real sector of the economy, which perform the industrial activities, give priority, as a rule, to the investments into the material and nonmaterial assets.

The financial investment is realized mostly in the form of the manufactures’ (as concurrent, so partner ones) participation in ruling purchasing shared securities, or in the form of temporal placement of free money sources for speculative goals.

From other inner factors important role in selecting the investment direction is played by the strategical direction of the operational activity, size of the manufacture (organization), the stage of the investor’s vital cycle and others.

From the manufactures and organizations of the real sector of economy the growth of financial investments characterizes, as a rule, large-scale industries, which have more opportunity of finding the sources of placing funds into the investments, and those manufactures, which are at the stage of the so-called “ripeness”. More extended form of investments at the earlier stages is the investments in the material and nonmaterial assets.

Among those outer factors, which make an essential influence upon selecting the investment forms the most important are the rate of inflation and the percent rate formed at the financial market.

The formal goals may be the aspiration for increasing profit, widening the scales of the manufacture (activity), obtaining power and prestige in the society; also, solving the social-ecological problems, keeping and increasing the working places and so on.

These goals are not often defined distinctly, are not coordinated according to the priorities or are not verified at the subject of the ability of their realization. That’s why, it’s necessary to point out the real goal of the investments from the formal goals by establishing concrete purposed showings. For example, the formal goal – increasing profit – must be concretized in a number of showings, for which the definition of the achievement quality will be possible. Concretely, it may be the middle quantity of the profit for several years or the showing of net profit, or those other showings, which characterize the earned profit from the investment.

Formal goals of the investments make the decision of defining problems about investment directions easier. Mutual connected, independent and alternative (inter excluding) investments may also be among them.

Main stages of the investment process. According to the formation of investment portfolio, the investment process becomes importantly easier at the expense of reducing its stages. In the foreign literature dedicated to this problem, they differ following stages of the investment process:

1.  Selection of the investment policy;

2.  analyzes of the investment market;

3.  re-inspecting the portfolio of the securities;

4.  estimating the investment effectiveness.

At the first stage they define the investment goals and the volume of the necessary sources for its realization, also the quality of risk and profitability for every financial instrument. Selecting those financial assets of the potential kind, which may be included into the portfolio, fulfills this stage.

At the second stage, they concretize the rate of value of the securities’ separate kinds on the foundation of marketing conjuncture formed at the concrete moment and provide the prediction of the share rates’ dynamic of the concrete firm. Such kind of approach is called technical analyze. Basing on the got data they conduct fundamental analyzes. Its essence is analyzing the brought value of all those cash money flows, which is expected to get by the owner of the financial asset.

Third stage of the investment includes selecting concrete assets for the investors, also defining the optimal proportions between the assets in the bounds of investment capital. The bases of it are selection, selection during the operations and the diversification of risk according to total profile.

The fourth stage concerns the periodical estimation of the current portfolio according to the changing the investor’s goals and its deviation from the optimal portfolio. After this selling of the part of purchased securities and buying new ones become possible.

At the last stage they provide periodical estimation of the factual profitability and the level of risk and their comparing with the existed standards.

Main participants of the investment process and their functions. To the circle of main participants of the investments belong: state, regional and local organs of the government, manufactures and physical persons: they can participate in the process of investments from the side of demand and delivering.

In the conditions of the market economy the circle of the participants of investment process is importantly widened. The web of commercial banks, credit-commercial organizations, investment funds of companies and insuring companies have appeared, which make independently the investment decisions. But still, the state and governmental regional and local organs define their participation in the process of investments. It is represented by holding investment competitions, by selection and proving the investment projects, by licensing and quoting the production, and also by defining the quantity of the percent  rate and taxation. The financial activities of the state, the organs of regional and local government as from the demanding, so the delivering side, influences essentially upon the behavior of the financial institutes and market.

Main distributor of money at the financial market is the population, because it gives much more to the investment process, then takes. Of course, it will not be said about the organs and manufactures of the executing government.

The researches of the foreign scientists U. Sharp, G. Alexander and G. Bailey show, that wholly the state and manufactures are net consumers of the money sources, that is that they use more sources then give. More concretely, many large-scale companies for realizing their long termed aims need enormous quantities of money for building factories, buying furniture, working out new products and so on. Besides, by realization active and difficult strategies of ruling cash cash masses, they appear to be main purchasers of securities. Such a situation is created on the side of the state, regional and local governmental organs, the activities of which is connected with the capital investments and guaranteeing current expenses.

The organs of executive government fill the insufficiency of the money sources by producing debt commitments and obligations, and companies by producing shares and other securities.

The factors defining the consistence of investment project participants and fulfilled functions. The consistence of the investment project participants and fulfilled functions provided by them, are defined by the following factors:

-    the specifics of investment project, its volume, technological hardness and so on;

-    compatibility of functions by the participants of the investment project during the realization of the project;

-    financial status of the customer, who increases or reduces the influxing the financial structures in the realization of the investment project;

-    providing the customer with the best material resources, building materials, techniques, furniture and so on;

-    selection of the type of ruling the investment project (traditional or progressive).

Basic participants of the investment project. In the ruling the investment projects with the traditional type they differ its following basic participants: sponsors, constructor, distributor of the furniture, the consultant of insurers, legal adviser, the consultants of the taxation and financial branch, creditors and others.

Let’s discuss them in more details.

In a wide understanding, a sponsor is a guarantor; a physical or juridical person, who finances an economical project or a registration of social activities. Also, an orderer, an organizer of a large-scale project or arranger sponsor may be as commercial, so noncommercial structure.

As to the sponsor, as the participant of an investment process, we may call it an orderer, organizer, who connects then activities of every participant of a project, arranges discussions, analyses commercial suggestions of the constructors of financial structures or distributors, realizes marketing researches and selection of the financial partners. In the separate occasions, it becomes responsible for fulfilling such functions of the constructing engineering, as engineer-consulting service, projecting-construction and analytical-calculating works, preparing a technical-economical substantiation, organization and ruling of the manufacture, working out recommendations in the sphere of production realization. These reduce the quantity of the investment process participants.

Project-construction and construction organizations or individuals act the role of a constructor, that is the provider of the work. The constructor can involve other persons in the process of fulfilling the order, who become the sub-renters, and the constructor him/herself becomes the general renter. He appears to be the main fulfiller of the constructive lease agreement and is responsible the before the orderer for the fulfillment total complex of activities established in the agreement.

Distributor of the furniture represents the filial, foster companies or those other firms, which have signed at distributing furniture and providing services. If the manufacture registers an agreement with an orderer for a complex distribution of materials, building techniques and furniture to many of firms, it becomes the general distributor and answers for the whole distribution.

The insuring consultant is invited for displaying the insuring risk and estimating the quality of the project’s safety, also, for working out the appropriate recommendations. The juris-consult provides the preparations of the juridical documentation around the project, discusses wholly agreements and contracts.

The consultant of the branch of taxation questions analyzes the taxation situation existed in the country for realizing the project and also the taxation obligations of every participant, makes recommendations for minimization the taxes.

Financial consultant provides the selection of financial, credit and calculation conditions by combination of the alternative variant for the realization of the project. In the case of influxing foreign investors into the project, he must bring it to the appropriation with the existed international standards. This will make easier the status of the potential investors and creditors.

Creditors, as the participants of the investment process, lend money in different terms and conditions. Under these conditions, the creditor has a right of demanding from the debtor to return credit or fulfill other obligations. A state, bank, manufacture or a physical person, investment funds and others may be the creditors.

A traditional form of ruling the investment project, in the time of which the orderer carries out him/herself the functions of ruling, has several defects. First is that the most part of the orderers is not competent enough in every question connected with the project. It makes the level of the risk stronger during getting the ruling decision that gives rise to a number of expenses. Second one is that, the successful ruling, according to the experiences, requests the leader’s systematic participation in the investment process, because the orderer is not always able to do it. And third, this form of ruling the project is characterized by the comparative dispersion of phases and stages as in the time, so in organizing. All these gives rise to the additional problems in the provision of the s’ agreement of its every participant.

Overcoming the mentioned imperfection happens at the moment of moving to the progressive form of the investment project ruling. Its essence is that the leader (manager) of the project becomes the basic figure in the organization and ruling the investment businesses. This may be a construction or construction-projecting organizations’ especially prepared high-qualified specialist or an experienced leader. He/she provides a general ruling of the project including finances, personnel and the construction works.

1.7. Planning and selection of objects of investment process

The definition of re process of investment planning.  The final phase of the first stage of the investment process is the selection of concrete objects of the investment, which is fulfilled in the process of planning investments.

They, as a rule, call the process of investment planning the process of forming such a portfolio (investment program) of the projects, which may be discussed as one of the alternative and mostly desired variant for achieving the investment object. Mostly using the mathematical models, which have no ability at all of reflecting every factor of the investment business, provides the planning of investment. That’s why the results of modeling don’t provide making such straight decisions, which would be the guarantee for the achieving the set object. The manufacture’s operative management basing on the results of planning and taking in mind other non-formalized factors provides getting the final decisions about those concrete objects of the investment, which must be included into the investment program of the manufacture.

The investment model is called such a mathematical model, with the help of which it is possible to estimate the effectiveness and resulting of the investments, as towards the set objects, so towards the sources for reaching it.

We must take into account the fact, that the real investments together with achieving the set objects cease quantitative changes as in the material-technical, so in the financial spheres. As to the financial investments, they are separated and touch mostly upon the financial side of the manufacture’s activities.

The investment business also may be isolated (separated) and interconnected. In the first case, in the process of investment business they discuss only alternative variant. Mutual connected investment planning also takes in mind the alternatives of getting decisions in the spheres of financing and organization. So the subject of isolated planning is working out the investment program. In the second case, the aim of the planning is industrial sphere wholly.

Any planning means distinctive period, during which the fulfillment and realization (exploitation) took place. This period is always reduced. It must be mentioned that the subject of investment planning terms is always conflicting. Basic question of the discussion is the ability of correcting the decisions under the influence of the phenomenon happened after finishing the planning section. Though this is a just demand the definition of the future investment decisions’ influence is possible only after these investments are realized.

Periods of the investment planning. In the process of investment planning, they divide the terms of planning into the intervals, which are called periods. The realizing decisions of one period are belonged to the beginning of end of the appropriate period. It’s important that this is not reflected at the conceptual side of the investment decisions and influences only the numbering of the period. Got results from the realization of the investments are expressed by the taxes, which are divided into delivery (for example, paying off the other industrial subjects by the investor) and incomes (for example, paid fee to the investor by other industrial subject).

The total sum of the payment during the concrete period equals to the sum of the realized delivery and incomes. If their balance is positive – that is the income overcomes the delivery or on the contrary.

The quantity of those periods during which the income-delivery of the sums takes place, is called either the term of the investment exploitation (in the case of the real investments), or the term of action (in the case of financial investments). This portion of time is either defined beforehand, or discussed as alternating quantity (at the time of getting investment decisions). The freed invested sources are called commonly disinvestments.

In the system of investment planning, the goal of the capital investment in this or that period of time may be the growth of property, increasing the income flow, making the investment profitableness higher and other showings, which characterize the ability of getting prolonged profit.

In the investment models of the planning, the volume of capital investment may change in the definite period of time, for which the plan is working out. During getting decisions, the priority is given to those projects, which guarantee the incomes from the realization of the investment in shorter time. Combination of the payments flow in this or that period of time is realized by the discount method.

Isolated planning of the investments. The isolated planning of investments is realized during the given budget toward the separate investment objects or the separate investment programs. The term of the investment (investment projects) exploitation may be discussed as a alternating or fixed parameters. The market of capital may be improved and also not improved. The separation of these markets is carried out by usage of distinctions between the percent rates of deposits and credits. Number of limitations of the financial resources in the isolated planning system may be belonged to any period of planning.

1.9. Interconnected planning of investments

Interconnected investment planning. The interconnected investment planning is realized in tight relations with planning the industry-financial activities. This relation is based on the complex formation of the cash flow taking in mind the fact, that like every activity the realization of every investment project needs the financial provision. This means that in the process of realization of the investment program, it is important to balance its financial parameters with the industrial and financial parameters of the manufacture, also, taking in mind the possible reductions. We mean, firstly the potential of own investment resources, the possibility of influxing loan capital, necessity of branch and regional diversification of the investment businesses, also, provision of effective balancing of inner balance, that is profitability, risk and liquidity of investment businesses.

The system of interconnection planning means the existence of many criteria during the selection of investment projects. It is based on ranging the goals and aims of the investment businesses in the system of the goals of business leading, according to either time, or meaning.

The differentiation of the criteria of investment projects’ selection takes place, as a rule, in the section of concrete forms of independent, inter-exclusive (alternative), and interconnected investment projects. Ranging of the goals requests the raging of criteria too. Usually, they use criteria of the net brought values and inner percent rate (inner profitableness) mentioned above, as basic criteria.

During the interconnected investment planning the system of reduction concerns basic and additional reductions. Basic reductions are the most important criteria of the selection. For example, if established basic criteria of the selection of investment projects are the showing of the project’s net brought value, the basic reductions may represent concrete meanings of the following showings: inner percent rate, the total risk level of the project, the terms of repurchasing the investment project and so on.

The additional reductions may be: the level of diversification of risk at the expense of regional and branch consistence; the value of the borrowed capital; the terms of realization of the investment projects; the size of the total volume of investment resources; the volume of the production and realization of the product and so on.

The realization of real projects. The concept of the second and third phases is essentially different from the real and financial investments, and it is stipulated by the peculiarity of their realization.

In the modern conditions the real investment is the foundation of investment businesses of the most manufactures. The realization of the real investment is characterized with a number of peculiarities; we can separate following ones:

1.  the real investments are straightly connected with the basic activity of the manufacture, the widening of the assortment of the production and improving its quality with the help of involving the achievements of the scientific-technical progress. In other words, investment business and real investment processes are connected and condition each-other;

2.  the real investments, relatively to the financial investments, are followed by bigger economical risks, which, in its turn, means the ability of providing higher profitableness relatively with the financial investments. Economical risks are connected with the peculiarity of the technological processes, factors of the material wearing out and so on;

3.  Real investments are less liquid relatively with the financial ones. The reason for this is a tight purpose of most of the investments in the real industry and very often absence of the abilities of alternative industrial usage. That’s why it is extremely difficult to compensate mistakes made during getting decisions about real investments.

The forms of realization real investments. Real investments are realized differently by the investments in the in the basic capital, capital investments in the turnover assets and investment in nonmaterial assets. The realization of the capital-investment, in its turn, happens in several forms and, firstly, it is building of new manufactures, reconstruction of the existed ones, modernization, technical re-equipment, and also, purchasing total prosperity complexes.

Purchasing total prosperity complexes is the prerogative of the largest companies with such a policy, which is directed towards increasing its influence at different markets. Real investments of this kind guarantee growth of the total value of the manufacture’s assets, which is conditioned by the growth of abilities of financial potential and joint usage of the system of materials, reducing the level of the manufacture expenses and so on.

New building, usually, is connected with the investments in such modern manufactures, which increases the labour production and satisfies the request of the ecological security, also, means the building of new objects.

Reconstruction in the most cases requests moving to the modern technologies of the industry taking in mind the achievements of scientific-technical progress. As a rule, it is connected with the involving of the resource economizing technologies, moving of the production to the modern standards of the quality and so on. The reconstruction may touch upon the building of new objects.

Modernization mostly is connected with bringing to conformity the active part of the basic funds to the modern requests of realization the technological processes.

Technical re-equipment touches upon the changing and purchasing new furniture, mechanisms and basic complexes of the technical system for effective realization of the technological processes. It is not always possible to put a sharp boundary between technical re-equipment and modernization.

Investments in the turnover assets as a rule, serves for widening the turnover funds used by the manufacture. In the most cases it is realized following the capital-investment realization and this essentially is the result of realization capital-investments.

Investments in nonmaterial assets generally mean innovational investments and realized in two basic forms:

Ready scientific – in the form of given patents of technical production, scientific achievements, inventions, commodity marks and so on; With the help of independent machining of the scientific-technical production.

Most part of the real investment forms and kinds – the turnover assets, excluding the innovations of separate kind of the furniture, mechanisms and so on, – are realized in the face of real investments having appropriate business-plans.6 In the business-plans of the investment projects together with the traditional section the subjects of providing the needed level of liquidity of the real investment objects and minimizing the level of investment risks must be worked out and shown.

Organization of the investment project realization. For preparing the organization and realization of every needed plan documents, as a rule the leader is appointed. The most important plan documents are the calendar plans of the projects and their capital budgets.

The calendar plans are made for definite period of time – year, quarter, month or decade. The data of terms and volume of the realization the separate kinds of activities foreseen by the investment project are represented in them. The terms and character of the activities define the quality of detailing the calendar plans.

Fulfillment of the calendar plan is straightly connected with financing the activities of the investment project. For this purpose, the financial plan is worked out, which, usually is called “the capital budget of the investment project”.  The volumes, terms and sources of the financing any kind of activities considered by the project in the section of separate phase of the calendar plan are substantiated and established in it.

Capital budget consists of two sections: capital expenses of the projects and influxing the needed sources for its realization. The capital expenses are the specified estimation of initial volume of the investment expenses taking into account the reserve of those financial sources, which are needed for recovering unexpected expenses according to the calendar plan.

The section of the “source influx” of the capital budget is the specification of volume of the investment needed resources for the project realization in the section of own sources of the investor, influxed sharing capital, leasing, banking credits and so on.

The synchrony of the income of the sources and the volume of investment expenses must be provided in the capital budget for realizing the works foreseen in the calendar plan.

Briefly about the investment risks. An important element of the project’s calendar plans and systems of sustaining capital budget taking into account the factors of the investment risk and working out the activities for their neutralization. The investment risk, as a rule, is discussed in the prism of possibility for getting unprofitable financial result. The forms of its displaying may be loosing the planned investment income or shortage for vagueness in the realization of investment projects. The investment project risk is a complex concept and units those various kind of risks, which are connected with the realization of investment projects.

Every stage of the realization of investments is characterized specific kinds of risks. That’s why estimation of whole risk of the project is provided on the foundation of aggregated facts according to the separate stages.

The realization of any investment project is in its essence a unique phenomenon for even one-typed projects. This circumstance makes the individual approach necessary, taking into account the specific information, which is connected with objective and subjective factors of occurring risks during the realization of the investment processes. The long is term of the project realization; the bigger is the vagueness of final results of its realization and, consequently – level of the risk.

We mist take into account the planned size of the cash incomes to get from the investment project depends on future status of appropriate segment of commodity market and effectiveness of commercial activity of the manufacture. It means that the investment risks are greatly conditioned by the commercial risks of a manufacture. In other words, there is a straight connection between the length of the vital cycle of the project and level of the investment-projecting risk. The completeness and trustworthy of the gathered information about every stage of the project’s realization, the level of qualification of the investing management defines greatly the substantiation of taking into account the various factors of the different types of risks.

The kinds of investment risks.Let’s name the basic kinds of the risks of investment projecting taking into account the specific conditions in Georgia.

The risk of inability of paying is in important connection with fulfillment of state obligations of the partners in the business, also, lowering the level of liquidity of the turnover sources.

The risk of financial provision of the project is connected with the late influx of the investment resources from the separate sources, the danger of incomplete financing because of increasing the value of the capital, which is needed for the realization of the project. It is in a straight correlation with the risks of inability of paying and inflation.

The risk of financial infirmity of the manufacture. It is characterized by the flow of invested own and borrowed capital and the incomes conditioned by the investment project and unbalancing of the flow of payments. This risk, together with the risk of the inability of paying is one of the most provoking reasons for bankruptcy of the manufacture.

The risk of inflation is connected with the possibility of devaluation of the expected incomes from the investment project and raising the value of capital expenses expressed by the nominal price. In the modern conditions the risk of inflation has permanent character and touches upon most parts of the operations of the project’s realization. Solving the problem of its taking into account and softening neutralizes this permanency.

The percent risk is related with the risk of inflation. It has own specific in Georgia, which is conditioned by the peculiarity of formation of the financial market and its being not developed.

The marketing risk is the risk of getting incomplete income from the investments on the stage of the project’s realization conditioned by the active circumstances at the expense of the volume and exploitation of the realization. The long are the terms of the project’s realization, the higher is the possibility of this kind of risk.

The criminal risk is conditioned, at the first place, by the absence of the appropriate defense of the rights of the investor’s privacy that appears in the economic of our country the most often.

For neutralization of the possible negative results of the investment projecting risks various measures and arrangement are worked out, which are grouped into the inner and outer measures. Inner measures of the neutralization of the risks concern the foundation of the various insurance and financial funds (reserves) and working out such measures, which will suppress possibility of raising this or that risk. This may be refusing using the low-liquidated assets and the borrowed capital of the important volume, also the mechanism of transferring the risks following the separate operations to the partners.

Foundation of the insurance and financial funds means the reservation of one part of the investment resources for getting over those unexpected negative results, which are not related with the actions of personnel and contractors of the manufacture. Of course, wasting of the part of the own sources of a manufacture, or, more concretely, “freezing”, makes important getting the loan at the market of finances for filling it, that makes the dependence on the outer sources of financing the investment projects stronger.

The outer methods of the neutralizing the projecting risks, in the first place, is insuring the project risks of separate kinds and guaranteeing by the third person. The object of the insuring is the property of the manufacture, which is used in the process of investment process; the responsibility of the manufacture and its personnel towards the third persons; insurance of the participants of the investment project’s realization. The mechanism of guaranteeing is oriented firstly towards the protection of the investors’ rights in case of changing the investor’s conditions.

The peculiarities of realization the financial investment. For the manufactures, which are not institutional investors, the basic direction of the investment business is the realization of the real investments. Herewith, when the conjuncture of the financial market gives the ability of getting significantly higher level of profitability at the invested capital, then the operation activity at the commodity market (the formed situation at the market of securities in Russia in 1995-1996 is a good example of this). Also, in case of existence of temporary free financial resources, the manufactures actively invest sources into the high liquidate financial instruments. Except this, the manufactures invest own capital other manufactures’ regulation funds for diversification and ruling other companies and organizations.

From the economical point of view, the financial investments are such instruments, with the help of with the solving the strategical and operative problems of effective placement of the capital in the country and abroad. The financial investments are mostly realized in the manufactures in the time of having free money sources. They appear in the face of outer investments (except the occasions, when the manufactures expiate their own securities, for example shares).

The most part of the manufactures realize the financial investments for the purpose of getting additional investment income (speculative income) from the usage of the free money sources. The concrete choice of the concrete instruments of the financial investments is wide enough even in the conditions of already formed market.

The level of profitability received from producing the investments into this or that instrument is in the straight relation with the level of risk. Higher is profitability, the higher is the risk of financial set-back.

The portfolio of the financial instruments. In the purpose of getting the desired level of profitability of the financial investments and the diversification of risks, the enterprises (investors) purchase financial instruments with different levels of profitability and risk, that is, in other words, they create the portfolio of financial instruments of specific character.

For the changing character of the conjuncture of the financial market, the process of getting desired level of the profitableness requests permanent monitoring of the various instruments’ profitability, risk and liquidity and also making the appropriate ruling decisions related with changing the portfolio of finances; it means the reducing or increasing the share of this or that financial instruments. Such kind of correcting is called “the restructuring of the portfolio”. It is the basic concept of the financial instruments’ operative ruling in the manufactures.

Basic financial instruments of the speculative portfolio of the finances the shared and debt securities, also, deposits and the currency valuables. During the monitoring process, depending on the type of the financial instruments, they take into account and analyze a lot of factors, which influence upon the levels of their profitability, liquidity and risk. From the factors which negatively influence upon the profitability of the shared financial instruments, the most important are:

· growing the level of taxation of the emitenti manufactures’ investment profit;

· the conjuncture changing of the volume of emitenti companies’ selling (it especially touches upon the oil companies);

· reducing the level of dividends for reducing the volume of the profit;

· reducing the price of net assets of the emitenti manufactures;

· speculative games of the participants of stock market.

The growth of the percent middle rate at the market; increasing the level of inflation; increasing the level of taxation of emitenti manufacture’s investment profit; degradation of the level of financial firmness of the manufacture; degradation of the pay ability of emitenti manufacture belong to the factors, which reduce the level of liquidity of the debt securities. The level of registration rate of the central bank; the firmness of the national currency; financial stability of the institutions of the deposit kind; changing of the percent middle rate at the financial market make and essential influence upon the profitability, risk and liquidity of the cash instruments.

According to the results of the investment market monitoring, they display the separate instruments of the speculative investments and also the tendency of the levels of profitability, risk and liquidity of the whole portfolio. Based on the received information, they make decisions about the necessity of the portfolio restructuring and its direction.

The investment resources during realization of the financial and real investments are used as in the cash, so in the natural form. The formation of the investment resources of the manufactures is connected as with the manufacture itself, so with the processes of gathering and keeping, which take place in the whole country. The rates and scales of the keeping and gathering the investment capital are conditioned by the level of the country development and also the level of the population’s profitability.

The process of formatting the investment resources in the manufacture is permanently working in the face of the incomes received from the basic activities and the activities not for realization, also by taking loans and others. The concrete quantity of those sources, which are used either for the investments, or the consuming needs, are defined by the finance-industrial plan of the manufacture. it depends greatly upon the values of their influx, the growth of the manufacture’s capital and its structure. If a large portion belongs to the sources in the structure, then the abilities of loaning are reduced. At the same time, the value of additional resources influx increases because of increasing the credit risk.

In the system of effective planning of usage and analyses of the financial resources it is very important to point out those various groups of the investments, which differ in specifics and request the usage of the adequate methods of ruling. They differ several characteristical features, with the help of which the classification of the investment resources takes place. 

by \!/_PeacePlusOne

Again about investment financing of the banks. As practice shows, long-termed financing of programs doesn’t take place spontaneously, but it means analyzing and control of current activities of the enterprises. For satisfaction of such requests, unfortunately, not every enterprise appeared to be ready. There, where all these requests are satisfied, banks become active participants in processing plans of strategy and financial provision of investment activities of the enterprises.

A special attention is required by such direction of the activities of commercial banks, as project financing is, which, to our mind, requires administration and financial support from the government, we mean the condition, that for effective salvation of investment problems it is necessary to create finance-industrial groups, and holding unions, which, in its turn, represents initial form of forming thick financial capital at the market and confluence of bank capital to the industrial one.1 This will give rise to the growth of investment volume in the economy and growth of effectiveness of capital investments. Of course, creation of such unions will be actually supported by commercial banks, but this is interrupted by such condition, that groups created today provide this activity in unregistered form and nobody is interested in their registration. This is supported by incomplete logistic, slow development rates of the institute of private property, interruptions in realization of agrarian reforms, provision of accounting calculations of financial structures in incomplete form and existence of separate statements working opposite to the creation of holding unions in the low about industry. All mentioned above may be solved immediately, by processing special low about investment activity and on the basis of its setting by the parliament in a short period of time.

It must be mentioned, that there are enough conditions for widening financial investments in the economy from the bank side because of the existence of free cash means. It is important, that these financial resources were influxed and to create a system of rational organization of purposeful usage, which must be expressed by processing of the investment policy. Here an important meaning belongs to the investment policy and correct definition of tactics.

What problems are there in front of the banks? It is also to be mentioned, that commercial banks have numbers of problems while realization of their investment activities, which prevent their normal functioning. We mean the banks, working on financing investment projects, in fact, represent only one unit in the system of private institutions. We consider following to be preventing conditions of their activities:

· Existence of marketing center of the investment projects, a coordinating organ in the country scale, which would play a function of regulator in the financial provision of the investment projecting;

· Unacceptability o the information about position of a potential borrower or investment institution;

· Refusal of creation of deposit web;

· Low level of development of the investment funds existed today;

· Absence of state investment bank, total specific organ of financing investment activity and, consequently, spontaneous distribution of the functions of investment banks working abroad under the conditions of market economics among Georgian commercial banks.

It must be also mentioned, that there are many economical factors, which may influence negatively upon realization of investment processed by the banks and nobody can define beforehand nontransiency of expected risk danger of these factors. Herewith, widening of working sphere in the investment activity of commercial banks objectively requires: giving more independence and rights to the commercial banks, growth of effectiveness of long-term investments and growth of incomes, relatively with those received from short-term financial operations, fastening of this process, ll kinds of supports from the side of the government and finally, further statement of trustfulness and firmness of the activities of banking system.

About necessities of providing structure institutional reforms in the country. For guaranteeing firmness of banking activities structure-institutional reforms, min goal of which is preparation for new stage of development of banking field, come to the first place. Necessity of the mentioned reforms is conditioned by the position of financial market of the country. New institutions, as mentioned in the works of D. Nort – the laureate of Nobel Premium, are formed in the case when the society sees the possibility of making profit, which is impossible during active institutional system. Maximal investment activities of banks are possible during many-fielded system o a financial market. This is a result of logical development of competition, as it solves problems of optimal usage of financial resources. Exactly this many-fielded character reduces and stops crisis in the country.

Many-fielded character of the banking system is characteristic to the most part of developed countries (the USA, countries of western Europe, Japan) and also for the countries having transitional economics, which applied for firm economical growth in the last decimal (China, Poland, Brazil and others). Exactly this many fielded banking system gives possibilities for using various types and forms of financial service in economics by credit department.

In this system the state creates various mechanisms of artificial reduction of competition among financial organizations. An evident example of this is separation of credit institutions into commercial and investment-credit institutions in the USA, also reduction of the bans of countries in the sphere of realization of many year credit investments and separation of state bank into separate category.

About development of small-scale business in Georgia. Creation of advantage regime for small-scaled business, in the first place, regulates creation of competition able outer conditions of the investment activity, which must be definitely foreseen in the activities of the country’s banking system. It must also be mentioned, that according to the development and improvement of the economy in the future, perhaps, such activities may not be needed, but under the conditions of transitive economics their importance may not be specially noticed. It is natural, that many-fielded financial sector is formed only under the equal conditions of competition, as there is reason-resulted, reverse-influencing relation. Mentioned relation between many-fielded financial sector and competition is expressed by that it helps creation of advantage regime for the investment activity being in the position of an embryo and its further development.

Briefly about state regulation of the investment process. According to the many-fielded principle of the financial market, the state must work out such a system of regulating investment activity, which guarantees “peaceful” coexistence of various financial institutions notwithstanding their size and specialization. Banks of every category must “act” in their marketing “sphere”, while regulation of banks of different levels from the state is stated according to the rules of regulation. Privately, to our mind, it is important to point out and regulate activity spheres of those banks, which use a capital of governmental organs. Under the conditions of many-fielded system of a financial market competition carries “fair” character and this is why such system is much firmer. Privately, in case of many-fielded system, under the conditions of concrete fight, while financing concrete state programs by forming a system of specialized state banks usage of state resources is possible more effectively. In this case objective usage of lobbing of state resources from the side of commercial banks is not allowed. For example, in Germany realization of state projects of ecological, agrarian, building and other fields are provided by specialized commercial banks. There are specialized credits in the banking system of other developed countries (Japan, Italy, France and so on) too. Such practice significantly reduces danger of incorrect usage of state resources under the conditions of competition fight.

One of the most important factors, which degrade effective development of real sector of the economy, is the irrelevance of the needed financial capital for the regional services. Basic volume of financial resources from the enterprises is accumulated in the center. Such situation is in a way justified for the state, but it is absolutely insoluble in relation with the private companies.

According to the various estimations, regional banks control not more, than 20-30% of inflow of financial resources of the regional enterprise, and this seriously degrades development of the local banks and enterprises. Thus, for solving problems about lack of resources for crediting real sector of a small economics of regional banks, question related with it, must be discussed in relation with outflow of financial resources from the region. Solving of these problems by administrative activities is impossible, processing of appropriate economical activities is needed. We mean the condition, that together with the growth of the share of local budgetary tax income, it is important to define responsibilities of the budgets of municipal creations in the development of regional economics. Thus, financial federalism is that necessary condition, which guarantees, from one side, formation of balanced market of financial service, and, from nother, further development of the investment activities on the basis of appropriate legislative base.

What does a financial federalism bring to the financial market? Creation of equal conditions for the competition under the conditions of financial federalism will naturally lead us to the formation of many-fielded system of the financial market. Such process also gives rise to the creation of thick financial centers on the basis of the existed and newly formed banks. Thus, development of regional banks within the bounds of the conception of banking industry development, gives rise to the growth of financial potential o regional economics. At the modern stage conditions of development of bank branch sphere are being widened more and more. Today banks mostly provide sources of basic financial capital inflow in the way of “region-center”, after transition to the real federalism many-fielded banks transform into the banks providing sources for financial capital outflow among the regions.

It also must be mentioned, that it is important to grow the importance of banking business, which must be expressed by forming town and country credit relations, mutual crediting and insurance societies, and loan-constructing associations. All these must be foreseen in Georgia in the process of banking system development and, accordingly, an adequate logistic must be prepared for advantage conditions for development of small and middle banking businesses, because formation of effective financial system in the regional scale is absolutely impossible. Therewith, if we take into account the fact, that the investment portfolio in the structure of joint assets of Georgian commercial banks did not overcome 1% for the first of January of 1999, and 4% for the first of January of 2005, this speaks for the tendencies of growing portfolio investments.

Attraction of foreign investments. Globalization and internationalization of the world’s industrial relations gives rise to the growth of the role of foreign investments, as financing investment activities.

Essence and types of foreign investments. Foreign investments are hose capital resources, which are taken out of one country and invest abroad in this or that industrial activity, for the purpose of making industrial profit or receiving percents. Foreign investments may be realized in various forms. While analyzing this form we can use distinguished methods of approach for classification of the investments, which men their separation from each-other according to the objects, purposes, terms of investments, forms of property on the investment resources, risks and other signs. Herewith, the necessity of specific of foreign investments defines statement of number of classification features for the investments of this type.

For example, foreign investments may be state, private and combined according to the property forms on the investment resources.

State investments are those resources of state budget, which are directed abroad by decision of the government or inter governmental organizations. These resources may have the face of state resources, credits, grants ot support.

Private (nongovernmental) investments are resources of private investors placed into those objects, which are placed out of the bounds of given country.

They call combined investments joint placement abroad of the resources of the private investors and the government.

According to the character of usage, foreign investments may be industrial and loan.

Industrial investments are direct or indirect ones placed into the business of this or that type for taking some rights for making profit of dividend kind. Loan investments are related with the distribution of resources under the loan condition, for the purpose of receiving percent.

While analyzing foreign investments, apportioning of straight, portfolio and other investments is of a great importance. Movement of foreign investments according to the international currency funds and methodology of the countries’ taxation balances are reflected in this section.

Briefly about legislative situation of the foreign investments in Georgia.  As shown in the chapters above, “investments” conceptually express long-term placement of the capital of solid quantity for the purpose of making profit. According to the Georgian low “about support and guarantees of the investment activities” investment is considered to be the valuable of every property and intellectual kind or the right, which is invested for the purpose of making possible profit and is used in the industrial activities provided on the Georgian territory. It may lean upon as inner (inside country), so outer (foreign) sources.

Here a great attention is paid to the investment surrounding (climate), which means real conditions existed in the country for the investments. It defines intensive attraction or declining foreign capital for the long-term investments. I.e. according to the concrete condition, investment surrounding may be as advantage, so in advantage, which is foreseen by every investor before making concrete step. Fundamental analyzing of the investment climate existed in the country and foreseeing risk factors are the basic goal f every investor.

Thus, it is definitely difficult to say, is present situation in Georgia good or bad. It would be more correct if we say that there are as advantage (stimulating), so preventing conditions in the country.

Foreign investments in Georgia are prevented by constitution, by the low “about support and guarantees of the investment activities” and by two-side agreement about investment encouragement and protection. Today Georgia has signed agreements with more then 23 countries about mutual support and protection and with 111 countries – about avoiding two-side taxation.

Legislative foundations and guarantees of their protection of realization of local and foreign investments in Georgia are defined by the low about guarantees and support of the investment activities, according to which foreign and local investors use equal rights. Privately, while realization of investment and industrial activities rights and guarantees of the foreign investors must not be less then those of the local juridical and physical persons.

According to the same low, physical and juridical person, also international organization, which provide investments in Georgia are considered to be the subject of the investment activity.

It must be mentioned, that after paying taxation and compulsory payments, a foreign investor gains right for unreduced repatriation abroad of the profit received from investments and other cash resources, and this may reduced only on the basis of the low – according to the court decision in case of bankrupting, crime or not fulfillment of civil obligations. Herewith, foreign investor has right to take abroad the property being under his/her property.

Georgian low “about supporting and guarantees of the investment activity”. Positive and negative sides. Georgian low “about supporting and guarantees of the investment activity” foresees as preventing and reductions in the sphere of providing investments, also the guarantee of protecting them, which means untouchable character of the investments and compensation in case of taking away investments within the bounds of the mentioned low. The compensation, which is given to the investor in case of taking investments off him/her, must conform to the real market value of the taken investments for that moment, when the taken off takes place. The compensation must be granted without any hamper and it must concern that loss of the investor from the moment of taking off till paying of the compensation mount.

It must be mentioned, that a new legislative act, which somehow worsens conditions of investments stated by this low, isn’t spread on already realized investments, ten years after its setting. In such case the investor realizes his/her activity according to the actual low until the new one is put down to the action.

A quarrel between foreign investor and state organ, if the method of its decision is not defined by dual agreement, is solved at Georgian court or in the international center of the investment quarrel. In the case, if the quarrel is not discussed in the international center of investment quarrel, the foreign investors have right to apply for the additional institute of the center or any other international arbitrageur organ, which is founded according to the rules set by the arbitrageur and international agreements of the commission of international trade low of the United Nations. Arbitrageur court of international trade palate in Georgia functions from December 11, in 2000.

According to the statistical showing, the most attractive sectors for the foreign investors were production of oil and gas, energetic, telecommunications and food industry according to the statistic showings during last years. Among largest investors there are such companies as Frontera Resources Corporation (USA), which has invested more then 30 million US dollars into Georgian oil production; Metromedia international – 40 million US dollars of investments in telecommunication; Pernod Ricard (France) – with the investments in alcohol production; AES (USA) – investments in distribution and generation of electro power.

By comparing showings we learn, that according to the hydro energetic potential, Georgia significantly overcomes such countries rich in the so-called “White Coal”, as France, Italy, Spain, Sweden, Romania and others. Though practically, less then 15% of real possibilities are used, and this gives large perspectives to the foreign investments in Georgia.

The fact is to be mentioned, that the foreign companies are interested in the process of privatization of state property, which is one of the most important part of the realized economical reform in Georgia. The fact, that foreign capital is invested in more then 100 Georgian companies proves this.

For influxing foreign capital into Georgia a positive surrounding is created by the existence of advantage conditions for development of such reduced fields, as oil production, black and colored metallurgy, separate kinds of mechanical engineering, mountain chemical industry, bottling of fresh and mineral water, production of building and decorating materials, tea, wine, fruit, citrus, wool, tobacco, industry of their refining and others.

Though foreign companies provide capital investments into these fields, for example, in agrarian and food industries, but it is provided in a very little quantity.

Factors of disadvantage surrounding in Georgia. Among those factors, which give rise to the disadvantage climate for influxing foreign investments in Georgia following are to be mentioned:

· Political strain and not quite seldom facts of lobbing business with unacceptable methods by the representatives of executive and legislative government, this takes away the basis of healthy competition as in common, so among the investors;

· Violation of the territorial integrity of the country, ethno conflicts, Not controlling of Abkhazia and South Alania (Smachablo), difficulties with protecting state boards, which spreads widely the door to contraband and prevents growth of risk factors of  influxing of as native, so foreign investments;

· From the beginning of 90s of last year, analogue to the countries of post soviet space, sharp economical, financial, energetic, food, ecological and other crises developed in Georgia for not ordinal conditions, gave rise to the backwardness of our country’s economy for some decimals. It would be enough to say, that a level of whole European product consisted only 36.8% in 1999, compared with 1991. This was the lowest showing in whole post Soviet space. Such destroying of economical functioning, evidently, reduces requests on foreign investments and significantly restricted their influxing;

For the purpose of statement of the level of spreading negative occasions mentioned above and processing appropriate recommendations World Bank and European bank of reconstruction and development provided joint research, where they learned 22 countries having transitional economics. According to these researches they made a conclusion, that a showing of “state obedience” (of corrupting, taking into hands) in these countries consists average 21%. It must be mentioned, that same showing consists 24% in Georgia. What about average level of administrative corruption, it reaches up to 3%, while in Georgia – 4.3%.Iit is natural, that created situation fears foreign investors and prevents influxing of their capital in a large quantity in our countries.

According to the experience of last years, giving state guarantees to the foreign investments is more difficult. Though, if it were easy to achieve, it would not be enough for the foundation, as Georgian state doesn’t stand on the firm positions, for making n investor sure in stability of the country. For comparing let’s discuss investment surrounding of Czech Republic, privately, that part, according to which investment logistic of the country foresees from April 1998 such scheme of advantages, which concerns taxation, custom and those of definite regions, also, grants for creation working places and so on . According to the mentioned analyze following is cleared out, that equal priorities in using advantages are given as to the foreign investors, so to the local ones. At the same time, if we pay attention to the showing of inflow of straight foreign investments into Czech Republic by years, we’ll see, that after the quantity of straight foreign investments had been reduced in 1997 (1300 billion USD) relatively to 1996 (1428 billion USD), in 1998 it was doubled and consisted 2720 billion USD, and in 1999 equaled to 5108 billion USD. One of the stimulating factors of the mentioned progress must be considered involving a system of advantages activated in Czech Republic from 1998.

Unfortunately, there is not a firm system of foreign investments and insurance yet in Georgia, which would significantly help the process of making investment surrounding healthy and inflow of a large amount of investments from abroad.

Factors preventing development of the country economy – significantly wide scales of shadow economics and corruption, so-called distribution of influence spheres by clans, setting of a barrier in this or that spheres of business especially prevent, from one side, development of local business and, from another – influxing of large-scale international investments.

How to use international legislative norms in the Georgian investment activities. Thus, a lot of problems (complex of problems) are formed in the process of attracting and using of foreign investments, and they are regulated by legislative norms.

Whole logistic regulating foreign investments may be grouped in the following way:

1.  special norms;

2.  total civil norms;

3.  norms of international agreement.

To special logistic in the first place belong special logistic and its following acts of quite large quantity.

Civil logistic regulates and conditions relations of foreign capital and enterprises participating with numerous counteragents. We mean various kinds of agreements, questions of representation, researching questions and so on. Thus, civil logistic is used in the case, when regulation of the activities of foreign investors is not provided with the special one, for its tight direction.

Norms of international agreements is the part of the country’s legislative system. International agreement gains special importance during international economical relations. Activation of the mentioned norm is basically spread on attracting and usage of foreign investments; following legislative acts belong to this sphere:

1. International dual agreement of mutual protection and encouragement of the investments. Dual agreements of foreign investments are discussed in this sphere as additional guarantees of the norms foreseen in national lows. Capital exporting countries and their investors consider that protection of foreign investment is more effectively solved in the way of inter-protection and encouragement of investments.

2.  International two-sided agreement for avoiding double taxation. Such agreement usually defines sources of income – profit and property, which is taxed in the country without any reduction. It is being set, which incomes (profit) and property may be taxed in the country – with some reductions and what source of incomes may be set free from taxations;

3. Many-sided conventions. From those international conventions, which regulate relations related with the investments, two are important – Seoul Convention about stating many-sided agencies of protecting investment guaranties (1985) and Washington Convention about solving quarrels (1965).

Involving of many-sided system of investment guarantees was outrun by creation and development of state system of insuring capital export in the developed countries.

Before making decision about placement of sources by the foreign investor, one of the important conditions is – guarantees of security and protection of capital investments in that country, where investments are inflown, the state takes obligations – to guarantee protecting of foreign property, guarantee of rights and interests of the foreign investor, guarantee privacy of realization of investment activity of the country territory. Thus, under the conditions of strict competition, state forms as much liberal regime for foreign investors as possible.

What difficulties are there in Georgia from the point of attracting foreign investments? Difficulties of definite kind are expressed today in the developing countries and, accordingly, in Georgia in the affair of attracting foreign capital and its effective usage. We my name following reasons for this:

· Regulation of the activities of foreign investors is getting difficult with the absence of stabile legislative base;

· Worsening of material position of the most part of the country population gives rise o the growth of social tension;

· There still are criminal and corruption in some sectors of industrial activities;

· Inappropriate level of infrastructure development; also of transport, communications, system of telecommunication, hotel services, roads and so on;

· High level of unsteadiness of total politics, privately, instability of logistic and court system;

· Absence of joint state investment policy in the business of attracting foreign investments;

Herewith, notwithstanding the difficulties named above, the country owns great potential, what may be the subject for interesting foreign investors. Privately:

· Rich and comparatively cheap resort and tourist resources;

· A large inner undeveloped market;

· Richest reserves of mineral and curing waters;

· Comparatively cheap qualified labor  force;

· Quite high staff of marketing development, which can master new technologies of production successfully and fast;

· Absence of serious competition by Georgian producers;

· Current process of privatization and possibilities of foreign investors in it;

· Possibility for making high profit very fast.

Thus, we can make a conclusion that, compared with the countries of Western Europe, notwithstanding large economical backwardness, Georgia can develop total investment activity comparatively faster, with the help of correct and effective usage of native and foreign investments.

Lamara Qoqiauri

Real member of the Academy of Economical Sciences of Georgia and New-York Academy of Science, Doctor of Economics, Professor

Since the beginning of economic reforms two decades ago, the economy in China has produced real growth rates of between 8 percent and 10 percent per year. It is believed that China will continue to experience exceptional growth for decades to come at rates well above those of any other large country in the world. In this talk Professor Burton Malkiel discusses why China will enjoy growth rates of economic activity well above those in the developed world. But economic growth does not necessarily translate into high-security returns. Indeed, returns from investments in Chinese equities have been unattractive for the past decade, and corruption and corporate governance issues, as well as a variety of…
Video Rating: 0 / 5

by \!/_PeacePlusOne

Questions to Ask before Investing Online or Elsewhere

We are faced with so many investment choices today, it Is sometimes difficult to decide which investment will best serve our purpose; as well as which investments are the safest, while giving us the best bang for our buck. While not specifically indicating particular investments, I want to
give you the appropriate guidelines in determining which investment is best suited for you.

Are you happy with the current 1% – 2% a year that most financial institutions are offering? Or does a higher rate of return appeal to you? There are investment opportunities that do offer a higher rate of return with limited risk. However, there are certain guidelines you must follow to determine which of these investments are best suited for your pocketbook and your personality.

As technology has advanced today, so have new investment opportunities, with higher returns; some, obviously safer than others. While the Forex market is now available to the average investor, it is truly a high risk arena and not appropriate for most. Other avenues of investing, which have not previously been available to the average investor, offer a handsome return, with a low risk. How do you find these investments? By doing your due diligence and following these guidelines I’ve outlined below.

10 Frequently asked questions:

1. How much money do I need to start investing online or elsewhere?
2. What are the costs or fees associated with the particular investment?
3. Once I’ve earned money, how fast can my funds be withdrawn?
4. What regulations are involved with the particular investment?
5. How do I assess the risks of a particular investment?
6. What are some of the highest return investments that the average investor can participate in?
7. Do I need to “qualify†to participate in the particular investment?
8. What are the minimums needed to fund the investment account?
9. Is there a guaranteed return on investment funds?
10. Over what period of time are funds held in order to produce a return?

How much money do I need to start investing online or elsewhere?

With the advent of online investing, it has become very easy to open various accounts with as little as a few hundred dollars. For instance, online investing has made it easier to invest in the stock market, including equity and derivatives, along with areas that up until a few years ago, could not be accessed or utilized by the average investor — Forex (Foreign Exchange) trading for one. Now, if there’s a market out there, it is possible that market can be traded online. So, the prudent advice would be to start with what you are comfortable in investing.

What are the costs or fees associated with the particular investment?

Many investments do charge fees or subscriptions as part of their service. The question to ask yourself would be, “Is this fee or charge too detrimental to the potential profit?†In other words, am I investing enough to offset the fees or charges that are going to erode my earnings? You will need to look at your potential profit and subtract the account charges from your profit to determine your actual percentage of profit.

Once I’ve earned money, how fast can my funds be withdrawn?

This question falls under the term “liquidityâ€. With some investments, like equity stock, it is possible to buy the stock one-day and sell the next or even within hours or minutes of the purchase. This is typically referred to as “Day Tradingâ€. Keep in mind that there is also a settlement period of 3-5 days before the funds are realized. Other investments may want you to commit your funds for a period of time before the principal and profit can be extracted. If it is possible to extract funds earlier, you may be charged a penalty for doing so. For instance, if you buy a CD (Certificate of Deposit), the bank usually wants you to keep that for a specified period of time and you are rewarded with the appropriate interest depending on the length of term that you have committed to — typically, the longer the term, the greater the reward, but remember, you have diminished your liquidity. Shorter-term commitments increase your liquidity and this is something to keep in mind, particularly if you might find yourself in need of these funds at some point in the future.

What regulations are involved with the particular investment?

When talking about regulations, we must first decide in what arena the particular investment falls — public or private. For our discussion in this book, we have limited our focus to areas outside of the real estate market and have primarily been referring to investments of money into equities, bonds, CD’s, commodities and the like.

On the public side of things, the largest regulatory agency is the SEC (Securities and Exchange Commission). With the Security Exchange Act of 1934, Congress created the SEC and empowered the SEC with authority over all aspects of the securities industry including oversight of brokerage firms, transfer agents, clearing agencies as well as the self-regulatory organizations (SROs). SROs are such entities as the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers (NASDAQ). The SEC has the power to administer disciplinary action and will prohibit certain types of conduct.

On the private side of investment are those investments not required by law to register with the SEC, which can include private companies, trusts, corporations or LLC’s, but who may wish to post their financial and significant information regarding their business as a show of “good faith†to their investors. This gives the company legitimacy, more transparency and validity for any investor they may wish to attract. In private transactions, as much information as can be gleaned before investing, including knowing the principals, the track record and seeking out satisfied investors, would be a prudent move. The more disclosure, the better it will be for your peace of mind.

How do I assess the risks of a particular investment?

As we discussed in the previous question, doing your due diligence is always advisable and educating yourself on the particular industry and investment vehicle, may turn up other areas of concern. Move forward only when you feel comfortable and confident with who and what you are dealing with. Seek out other advice from professionals as well as talking with other investors — particularly those who have specific experience with the type of investment you are considering, but remember, don’t let “one bad apple spoil the whole bunch†when it comes to soliciting investor advice. Get a broad range of facts and opinions in order to formulate the most prudent and judicial analysis.

What are some of the highest return investments that the average investor can participate in?

In trying to answer this question, one must look at the relationship between risk and reward. Typically, the higher the risk, the greater the reward and vice versa. It is not uncommon for an individual equity stock to post tremendous gains on an annualized basis — many times over 100%! One small cap stock that I am familiar with grew 1600% over the past decade. Sounds too good to be true, doesn’t it, but it’s not. Please keep in mind that this particular stock is an exception, not the norm. In fact, most stockholders recently have been happy to see a profit at the end of the year and are happy just to avoid a loss.

With that said, there are plenty of other offerings that provide huge upside potential with limited risk. One of these is in the physical commodities buy/sell contract arena. This particular area of commodities has been highly mischaracterized because most people and investors tend to lump these types of investments in with futures or exchange traded funds, and nothing could be further from the truth. Physical commodities buy/sell contracts are pre-arranged cash contracts that typically range anywhere from 2 weeks to a month or two in length, thus offering greater liquidity and at the same time, offering lucrative returns with limited risk. This is a relatively new arena for the average investor because it has been the arena of the very wealthy, although, now there are companies emerging that offer the average investor participation at smaller amounts than what previously required.

Do I need to “qualify†to participate in the particular investment?

Depending on the type of investment vehicle and the amount of money required to invest along with the level of risk, will dictate whether or not a person needs to be considered as an “accredited†investor. In terms of individual investors, this type of classification refers to the individual or couple’s gross annual revenue or net worth. Typically, net worth is considered “accredited†at or above ,000,000 or an individual who has an income in excess of 0,000 in each of the 2 previous years or a joint income with that person’s spouse in excess of 0,000 per year. Outside of that, the basic rule is whether or not an individual has sufficient liquidity to invest without harm and has the appetite for the given risk.

What are the minimums needed to fund the investment account?

This will vary from investment to investment. You may have a mutual fund that requires a minimum investment of 00, whereas you may be able to participate in an equity stock with as little as a few hundred dollars — it all depends.

Is there a guaranteed return on investment funds?

Outside of a CD, loan or bond, there is no guarantee of return. Anyone telling you that the return is guaranteed is, more than likely, misrepresenting the risk associated with the typical investment. With most investments, you should hear that “past performance is no guarantee of future resultsâ€.

Over what period of time are funds held in order to produce a return?

I covered this somewhat in a previous question, but the answer to this depends on the particular investment vehicle. For instance, a CD may hold funds for months or years depending on the rate of return being offered. With equity stocks, you can buy one minute and sell the next. Every investment stands on its own rules and how the vehicle works in producing a return for the investor. Certain investments with a specified time period and a projected rate of return help to minimize risk — especially long term risk, and improve liquidity. Depending on your investment objectives, a diversification of an investment portfolio is also very much advised by most in the investment arena in an effort to hedge against one area or another producing a devastating loss. It is also a good idea to rank your priorities in terms of liquidity, risk and reward. What’s most important to you will ultimately dictate the type of investment you may wish to seek.

For additonal information go to How much money do I need to start investing online or elsewhere?

With the advent of online investing, it has become very easy to open various accounts with as little as a few hundred dollars. For instance, online investing has made it easier to invest in the stock market, including equity and derivatives, along with areas that up until a few years ago, could not be accessed or utilized by the average investor — Forex (Foreign Exchange) trading for one. Now, if there’s a market out there, it is possible that market can be traded online. So, the prudent advice would be to start with what you are comfortable in investing.

What are the costs or fees associated with the particular investment?

Many investments do charge fees or subscriptions as part of their service. The question to ask yourself would be, “Is this fee or charge too detrimental to the potential profit?†In other words, am I investing enough to offset the fees or charges that are going to erode my earnings? You will need to look at your potential profit and subtract the account charges from your profit to determine your actual percentage of profit.

Once I’ve earned money, how fast can my funds be withdrawn?

This question falls under the term “liquidityâ€. With some investments, like equity stock, it is possible to buy the stock one-day and sell the next or even within hours or minutes of the purchase. This is typically referred to as “Day Tradingâ€. Keep in mind that there is also a settlement period of 3-5 days before the funds are realized. Other investments may want you to commit your funds for a period of time before the principal and profit can be extracted. If it is possible to extract funds earlier, you may be charged a penalty for doing so. For instance, if you buy a CD (Certificate of Deposit), the bank usually wants you to keep that for a specified period of time and you are rewarded with the appropriate interest depending on the length of term that you have committed to — typically, the longer the term, the greater the reward, but remember, you have diminished your liquidity. Shorter-term commitments increase your liquidity and this is something to keep in mind, particularly if you might find yourself in need of these funds at some point in the future.

What regulations are involved with the particular investment?

When talking about regulations, we must first decide in what arena the particular investment falls — public or private. For our discussion in this book, we have limited our focus to areas outside of the real estate market and have primarily been referring to investments of money into equities, bonds, CD’s, commodities and the like.

On the public side of things, the largest regulatory agency is the SEC (Securities and Exchange Commission). With the Security Exchange Act of 1934, Congress created the SEC and empowered the SEC with authority over all aspects of the securities industry including oversight of brokerage firms, transfer agents, clearing agencies as well as the self-regulatory organizations (SROs). SROs are such entities as the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers (NASDAQ). The SEC has the power to administer disciplinary action and will prohibit certain types of conduct.

On the private side of investment are those investments not required by law to register with the SEC, which can include private companies, trusts, corporations or LLC’s, but who may wish to post their financial and significant information regarding their business as a show of “good faith†to their investors. This gives the company legitimacy, more transparency and validity for any investor they may wish to attract. In private transactions, as much information as can be gleaned before investing, including knowing the principals, the track record and seeking out satisfied investors, would be a prudent move. The more disclosure, the better it will be for your peace of mind.

How do I assess the risks of a particular investment?

As we discussed in the previous question, doing your due diligence is always advisable and educating yourself on the particular industry and investment vehicle, may turn up other areas of concern. Move forward only when you feel comfortable and confident with who and what you are dealing with. Seek out other advice from professionals as well as talking with other investors — particularly those who have specific experience with the type of investment you are considering, but remember, don’t let “one bad apple spoil the whole bunch†when it comes to soliciting investor advice. Get a broad range of facts and opinions in order to formulate the most prudent and judicial analysis.

What are some of the highest return investments that the average investor can participate in?

In trying to answer this question, one must look at the relationship between risk and reward. Typically, the higher the risk, the greater the reward and vice versa. It is not uncommon for an individual equity stock to post tremendous gains on an annualized basis — many times over 100%! One small cap stock that I am familiar with grew 1600% over the past decade. Sounds too good to be true, doesn’t it, but it’s not. Please keep in mind that this particular stock is an exception, not the norm. In fact, most stockholders recently have been happy to see a profit at the end of the year and are happy just to avoid a loss.

With that said, there are plenty of other offerings that provide huge upside potential with limited risk. One of these is in the physical commodities buy/sell contract arena. This particular area of commodities has been highly mischaracterized because most people and investors tend to lump these types of investments in with futures or exchange traded funds, and nothing could be further from the truth. Physical commodities buy/sell contracts are pre-arranged cash contracts that typically range anywhere from 2 weeks to a month or two in length, thus offering greater liquidity and at the same time, offering lucrative returns with limited risk. This is a relatively new arena for the average investor because it has been the arena of the very wealthy, although, now there are companies emerging that offer the average investor participation at smaller amounts than what previously required.

Do I need to “qualify†to participate in the particular investment?

Depending on the type of investment vehicle and the amount of money required to invest along with the level of risk, will dictate whether or not a person needs to be considered as an “accredited†investor. In terms of individual investors, this type of classification refers to the individual or couple’s gross annual revenue or net worth. Typically, net worth is considered “accredited†at or above ,000,000 or an individual who has an income in excess of 0,000 in each of the 2 previous years or a joint income with that person’s spouse in excess of 0,000 per year. Outside of that, the basic rule is whether or not an individual has sufficient liquidity to invest without harm and has the appetite for the given risk.

What are the minimums needed to fund the investment account?

This will vary from investment to investment. You may have a mutual fund that requires a minimum investment of 00, whereas you may be able to participate in an equity stock with as little as a few hundred dollars — it all depends.

Is there a guaranteed return on investment funds?

Outside of a CD, loan or bond, there is no guarantee of return. Anyone telling you that the return is guaranteed is, more than likely, misrepresenting the risk associated with the typical investment. With most investments, you should hear that “past performance is no guarantee of future resultsâ€.

Over what period of time are funds held in order to produce a return?

I covered this somewhat in a previous question, but the answer to this depends on the particular investment vehicle. For instance, a CD may hold funds for months or years depending on the rate of return being offered. With equity stocks, you can buy one minute and sell the next. Every investment stands on its own rules and how the vehicle works in producing a return for the investor. Certain investments with a specified time period and a projected rate of return help to minimize risk — especially long term risk, and improve liquidity. Depending on your investment objectives, a diversification of an investment portfolio is also very much advised by most in the investment arena in an effort to hedge against one area or another producing a devastating loss. It is also a good idea to rank your priorities in terms of liquidity, risk and reward. What’s most important to you will ultimately dictate the type of investment you may wish to seek.

For additional information go to: http://www.siteproweb.com/20-questions-lead-page

President Obama and Vice President Biden address a meeting of the Middle Class Task Force and lay out a series of proposals and initiatives designed to create jobs, strengthen the economy, and ease the burden for middle-class families. January 25, 2010.
Video Rating: 3 / 5

by Salmaan Taseer

High-Tech Companies Are Low-Grade Investments

Image by mikesolita
IEEE Spectrum // November 2010

I created this scatter-plot/area graph to explain how poorly tech stocks have performed over the past decade, especially compared to the overall market.

I also created an interactive Flash version with clickable values for every data point:

spectrum.ieee.org/static/hightech-companies-are-lowgrade-…

Masterpiece Investments Corporation Home

Eastern tribes have a completely different beadwork aesthetic, and Innu, Mi’kmaq, Penobscot, and Haudenosaunee tribes are known for symmetrical scroll motifs in white beads, called the “double curve.” Iroquois are also known for “embossed” beading in which strings pulled taunt force beads to pop up from the surface, creating a bas-relief. Tammy Rahr (Cayuga) is a contemporary practitioner of this style. Zuni artists have developed a tradition of three-dimensional beaded sculptures.

Northwest Coast
Main article: Northwest Coast art
See also: Alaska Native art, Kwakwaka’wakw art, and Haida argillite carvings
The art of the Haida, Tlingit, Tsimshian and other smaller tribes living in the coastal areas of Washington State, Oregon, and British Columbia, is characterized by an extremely complex stylistic vocabulary expressed mainly in the medium of woodcarving. Famous examples include Totem poles, Transformation masks, and canoes.

Contact Masterpiece Investments:It should be noted that the notion that fine art cannot be functional has not gained widespread acceptance in the Native American art world, as evidenced by the high esteem and value placed upon rugs, blankets, basketry, weapons, and other utilitarian items in Native American art shows. A dichotomy between fine art and craft is not commonly found in contemporary Native art. For example, the Cherokee Nation honors its greatest artists as Living Treasures, including frog- and fish-gig makers, flint knappers, and basket weavers, alongside sculptors, painters, and textile artists. Art historian Dawn Ades writes, “For from being inferior, or purely decorative, crafts like textiles or ceramics, have always had the possibility of being the bearers of vital knowledge, beliefs and myths.”
Blanket Stories, Marie Watt (Seneca), installation, 2004, George Gustav Heye Center

Masterpiece Investments

Pueblo men weave with cotton on upright looms. Their mantas and sashes are typically made for ceremonial use for the community, not for outside collectors.
Beginning of a Chilkat blanket, woven by Elsie Gale Stewart-Burton (Haida), Ketchikan, Alaska

The Calusa peoples occupied the southern areas of Florida before European contact, and created carvings of animals.
The Seminoles are best known for their textile creations, especially patchwork clothing. Doll-making is another notable craft.
The West

Masterpiece Investments Management: Yurok women’s basketry caps, Northern California
A complex technique called “doubleweave,” which involves continuously weaving both an inside and outside surface is shared by the Choctaw, Cherokee, Chitimacha, Tarahumara, and Venezuelan tribes. Mike Dart, Cherokee Nation, is a contemporary practitioner of this technique. The Tarahumara, or Raramuri, of Copper Canyon, Mexico typically weave with pine needles and sotol. Yanomamo basket weavers of the Venezuelan Amazon paint their woven tray and burden baskets with geometric designs in charcoal and onto, a red berry. While in most tribes the basket weavers are often women, among the Waura tribe in Brazil, men weave baskets. They weave a wide range of styles, but the largest are called mayaku, which can be two feet wide and feature tight weaves with an impressive array of designs.

Buying stocks without a broker is a simple process done by going through the company’s Web site and signing up for an account online. Purchase stocks or a dividend reinvestment plan with insight from anexperienced financial specialist in this free video on investing. Expert: Phillip Beningoso Contact: www.wearehdtv.com Bio: Phillip Beningoso has a bachelor’s of arts degree with a major in finance and a minor in economics and computer sciences from Kent State University. Filmmaker: Christopher Rokosz
Video Rating: 0 / 5

by NCinDC

During the current economic climate, there are factors that entrepreneurs look at more closely when it comes to starting up a business.  The “where” and “how much” factors become a bigger part of the decision, as one looks to trim any unnecessary cost factors.  Gone are the days where if you were technology based, you’d set up in Silicon Valley or if you needed to network with business contacts – set up shop in New York.  Ironically, thanks to modern day technology, you can set up in a much wider range of locations.

Entrepreneurs look at factors like the ease of recruitment, and as a result – have looked into the central states of the US, such as Colorado, where the workforce is well educated, quality of life is good, and cost of living is a big step lower than on the coasts.  

With hopes up about stabilisation of the economy, this is a great opportunity for aspiring entrepreneurs and small business start ups alike to take things to the next level.  Over the last few years, several angel groups and individual investors have started to set up shop in cities like St. Louis (such as the Arch Angel Investor Network), again bucking the general trends.  

On the Central Investment Network – entrepreneurs in the Central states of the US get another chance to connect with angel investors.  Members can get their business ideas and plans out to hundreds of local investors – and since Central Investment Network is part of the Angel Investment Network, members can connect with thousands of other investors from around the world.  In fact the network grows continuously, with branches in over 40 countries and investments occurring both on a local and international basis.

Of course, the plans have to be well thought out and organised, as while entrepreneurs may have less competition, the investors are also more choosy.  Still, there are signs that more successful angel investment strategies such as venture capital investments are occurring within the central states.  While some venture capital backed companies have gone bankrupt this year in the U.S, almost all of them are California based, and none of them are in the states that the Central Investment Network covers – which includes Colorado, Kansas, Missouri, Montana, Utah & Wyoming.

Find out more, by visiting http://www.centralinvestmentnetwork.com

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by Alex Osterwalder

Governor Patrick highlights local infrastructure investments at the Chelsea Street Bridge

Image by Office of Governor Patrick
Thursday, May 20, 2010 — Governor Patrick visits the Chelsea Street Bridge to highlight local infrastructure investments and touts job numbers released today showing that the Massachusetts economy gained over 19,000 jobs in April. Learn more at www.mass.gov/governor.

(Photo credit: Eugena Ossi/Governor’s Office)

The concept of managed investment schemes was outlined in July 1998, by the Managed Investments Act (Cth)(Act), and has been defined as a scheme in which people contribute money to acquire interest to benefits produced by the scheme.

The contributions are used to further the scheme, and the members do not have control over the day to day operations.

The Managed Investments Act (Cth)(Act) replaces the old “prescribed interests” regime, and its most significant change is the replacement of the roles of trustee and manager with the single Responsible Entity role. The Act also introduced new measures to ensure adequate investor protection.

A managed investment scheme must be registered with the Australian Securities and Investments Commission (ASIC) if;
1. The scheme has 20 or more members; or
2. The scheme is promoted by a person who is in the business of promoting managed investment schemes.

Where a scheme is required to be registered, the following must be addressed;
•Appointment of a responsible entity
-Responsible Entity must be an Australian public company holding a licence to act as a Responsible entity
-This is a dual role, of both trustee and scheme manager
-Must have minimum net tangible assets of ,000 or 0.5% of the value of the scheme’s assets, up to million
•Custodians must be appointed in some cases
•A Constitution, similar to a trust deed, must be made
•A Compliance plan must be made, setting out the measures which a Responsible Entity is to apply in operating the scheme to ensure compliance with the constitution.
•Compliance committee is to be created if the board of directors of the RE does not consist of at least half external directors

As recommended in reviews of the superannuation system, all super schemes established by private sector employers are established as trusts. Superannuation schemes for public servants are established under Acts of Parliament, and most, but not all, are run as trusts. Trusts are currently seen as the most appropriate legal structure for superannuation schemes in Australia.

Trusts have been in existence (as a legal concept), for nearly a thousand years. In their earliest days, people could transfer their land to others, under trust that the receiving person would hold the land ‘to the use of’ the transferor.

A traditional trust vests title to property in a person or persons on behalf of another person or persons. The legal owner of the property is the trustee, and the other party is the beneficiary.

The person who provided the trust property is called the settlor, who may be the trustee, the beneficiary or some third party.

In a trust, the trustee owes a fiduciary duty to the beneficiaries. This duty means that the trustee must not place their personal interest above or in conflict with the interest of the beneficiaries, and not use the trustee position to acquire any other advantage.  A trustee may be a beneficiary, but not the sole beneficiary.

Trusts are often used to overcome the problem of unincorporated groups not being able to own property. In such a case, the trustees hold property for the group, on terms established by the trust deed. Superannuation generally uses the trust form.

Trusts are used in superannuation investment schemes to enable a wide range of investments to be created for beneficiaries. Superannuation schemes sometimes employ professional trustees, which operate under State and Territory legislation.

by OECD

Today’s economy is in transition. Investors are seeking new venues to explore and energize with capital. Emerging markets are a major factor in capital development. Today the United States has less than 50% of the world’s capital investments. Current statistics place 70% of the world’s population living in developing countries with 46% of the land mass and 31% of the GDP. Opportunities are in abundance for astute investors with a conservative attitude and approach.

Setting financial money investment goals is a critical first step in any financial plan, personal or business related. Many investment fund companies have a selection of products from annuities to fixed rate return investment packages; your goals will help you select the appropriate product or combination of products as well as rate of return. Next will be to select a reputable investment firm that markets the type of funds you have determined will satisfy your plan.

With the current world situation of financial challenges, working with a company that offers reputation, longevity, experience and skilled advisers and fund managers who will listen, provide advice and work on your behalf with ethics and high professional standards is essential. Companies that have been in operation for several decades offer the dependability and security an investor wants without the staleness of ideas and inertia other older companies might be carry as the baggage of age.

Firms that are investing in capital projects in what was once called the third world are seeing dramatic success in earning legitimate and safe profits for their investment funds. This environment is properly termed the developing economy sector. It holds great promise for the savvy investor who utilizes a qualified company that has the experience and sufficient fund capability to sponsor development projects. From energy development to mining, the new economies are developing their natural resources with company investment capital from investor resources.

There are some caveats that investors should have in mind when considering a company that puts their money in these projects in the developing economies. Due diligence is for everyone: investors have a personal responsibility to select the best money investment firm that is qualified for this type of process. The investor should also be as knowledgeable as possible about the location of the project, what local authorities, regulations and other unique conditions are involved that could have an effect on the outcome and their investment.

The firm itself has in-depth due diligence as its priority. Developing proper, ethical and cordial relationships with the appropriate authorities is essential to the necessary cooperation needed to guarantee the project’s completion and success. The firm must be aware of potential problems and have in advance the resources to resolve them. They must possess a deep knowledge of any and all regulating bodies and have the local representation to work directly with them. The reward for considering investment in developing economies with investments managed by reputable, professional and experienced firms is waiting for the conservative investor who plans, sets goals and does their own due diligence. Fortune favors the bold and the knowledgeable.

Warren Buffett says that distressed assets are a great investment in an interview with Charlie Rose. He talks about Mortgage-Backed Securities, the government bailout. He says if you buy distressed assets at distressed prices, you will make money. He also mentions his confidence in the US economy over time, and closes with his classic quote: “You want to be greedy when others are fearful, you want to be fearful when others are greedy.”

by mayorgavinnewsom

Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company _0168

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***Please share your 3 Finger Photo with the world – www.3Fingers.org Send your wishes for inclusion, balance and harmony to Copenhagen_\!/ ***

Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company
Kuwait-China Investment D- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
www.SustainabilitySymbol.com
www.PeacePlusOne.com

Kuwait-China Investment Forum, Beijing China

- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
www.SustainabilitySymbol.com
www.PeacePlusOne.com

Kuwait-China Investment Forum, Beijing China

- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
www.SustainabilitySymbol.com
www.PeacePlusOne.com

Brown and Greenfield Investing

Teak is a prime tropical hardwood, which requires 20 – 25 years to grow in a commercial plantation environment. If the investor enters at project start this is defined as Greenfield investing. The other option, a Brownfield investment, means that a buyer enters later and buys into an existing but older plantation. On the market there are various investment opportunities available at different ages, in teak and other tropical woods, thus providing a wide choice for investors.

Main Risks for Teak Plantations

Teak plantations bear certain risks. From a technical point of view key risks are e.g. the soil quality of the site, the suitability of the location, climate and fire to name the major ones. Normally detailed soil analysis is performed before planting in order to determine the right planting strategy. A plantation manager should be familiar with the site as observation over time can tell best what grows on the respective site. The results of the original plantation strategy become visible in the years thereafter. In most cases the tree diameters are measured and compared towards industry benchmarks to evaluate the progress in growth.

From a financial point of view, main risk is that the management company would run out of money. Teak trees require pruning, thinning and clearing of the underwood for maintenance. Doing this properly ensures that the tree,s commercial value is maximized. However, this comes at a certain cost. Given the project period is 20 – 25 years, strict discipline on cash management is required. In case the plantation manager runs out of money, the investor looses two fold: First requiring additional financing and second the commercial value of the trees might be suboptimal due to savings in maintenance.

Exit Strategies from Teak: The Seller’s Perspective

Like Private Equity, when investing in teak, an investor is required to think about exit: How and when do I sell this investment? – Investing in a teak project offers the following main exit strategies:

(1) Exit at final harvest (20 – 25 years)

(2) Sell the investment to another investor / buyer

Teak investors need to be patient and normally be prepared being invested for 20 – 25 years. The main reason is that as the trees grow, they increase in their commercial value when properly maintained. No cash flow is coming in, thus the investor needs to wait for the commercial thinnings. In order to get an attractive IRR, the investor will have to wait till final harvest. The value of the trees becomes more attractive at older ages and being able to sell large sized logs, thus getting better prices. Therefore, profit maximization requires to be invested till the end of the project, which requires patience and stamina for the investor.

The option to sell the investment along the road is a trickier one. First, the quality of the trees will be clearly visible and thus a potential buyer will pay based on visible results only. In case maintenance has been neglected, or the soil quality affected volume growth, the buyer will take this into account. Second, the market for existing plantations appears intransparent and illiquid. Thus for the seller it takes effort and time to find suitable buyers. The buyer will be very well aware of this and will pressurize the seller to offer a liquidity discount in order to increase his own IRR.

Buying an Existing Teak Plantation: The Buyer’s Perspective

Buying into an existing teak plantation avoids certain risks for the buyer. First, the project,s results are clearly visible and he should bear less risk as soil quality and the suitability of the site can be better assessed. The difficulty lies more in doing the due diligence. Due to a lack of data, a non-sophisticated buyer might need some time to figure out if the said plantation complies to industry benchmarks or not. For the sophisticated buyer such opportunities are much more interesting, since for him he will be better able to provide an estimate of the target harvest volume based on the existing tree diameters. Thus buying into an existing plantation can reduce risk for the buyer.

The second aspect is that in a Greenfield project the ‘lock-in’ period can be up to 20 – 25 years while buying into an existing plantation reduces the holding period for the investor – dependent on the maturity of the plantation, quite considerably. Smaller holding periods mean less risk for the investor. Also, for cash flow estimations various assumptions need to be made (inflation factor, expected selling price and harvest volume). Those assumptions affect cash flow estimations. In case of errors – an estimation in its definition is not be the same as the actual outcome – the difference to reality is less severe for a Brownfield project than in case of a Greenfield project, where initial assumptions have a higher compounding effect and thus can lead to bigger variation from reality.

Conclusion

From a risk point of view it might be smarter to be invested in a plantation at older age. Several previously unknown variables become more clear, the investment period is shorter and the risks should be reduced. However, this approach requires more due diligence and close attention to the price to be paid.

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by Salmaan Taseer

Romania – famous for its beautiful palaces and castles, wonderful liquors and food, Dracula, dazzling women is a beautiful country located in central-eastern Europe. It is the 12th largest country in the Europe. The economy of Romania has shown potential growth in the past few years. Since 2000, Romania has shown a rhythmic growth of 4.5% raised by 8.3% in 2004.

The current economy statement in Romania is steadily increasing the levels of GDP and significantly high levels of Foreign Direct Investment (FDI). The economy investment grade has recently been upgraded by Fitch and P&S. Romania benefits from the rising FDI flows due to the privatization process, and the advantages of its big internal market

Romania is also having a great geographical location at the intersection of some great trade routes joining the Far East with the Western Europe. With population of more than 20 million people, Romania has a large domestic market. After having such great property investment opportunities, Romania is continuously attracting more and more foreign investors to invest in Romania. Stable and encouraging government of Romania is the other reason which is creating great investment opportunities in Romania. The Real estate market in Romania is growing at a rocket speed. Following are some best reasons for investing in Romania.

Reasons to Invest in Romanian Real Estate Property:

1. With strategic and visionary efforts by Romanian government, the economy is becoming stronger and stronger over the years. Romania is one of the fastest growing economies in Europe.

2. Falling inflation and increasing employment are two other boosters of rapidly growing economy. Inflation has dropped to 7.5% low in 2005 from 22% high in 2002. Unemployment rate also fell to 6.2% in 2006 with less than 3% in capital Bucharest which is far lower than the many other developed European economies. With under control inflation and falling unemployment rate Romania is confidently creating the strong property buying opportunities over the country.

3. Foreign investment in Romania is increasing drastically. From 2001 to 2005, foreign direct investment in Romania has reached over 5000 million euros and more 8000 million euros added in 2006. With 55% of FDI in capital city Bucharest, major companies from all over the world are coming to invest in Romania.

4. Along with capital city of Bucharest, other cities in Romania like Brasov, Transylvania, Craiova, Constanta and Iasi are also attracting investors. Transylvania is the Romania’s biggest tourist asset and the expected to attract more investment with immense number of investment opportunities. One more golden opportunity where investors want to invest is in Brasov, the most visited city of Romania. Having facility of international airport, Brasov is also linked with new motorway for fast transportation.

5. Report given by investment experts says that house prices in Romania are expected to increase by 4 times higher over the next 10 years. In past few years, property prices are already raised by 25%. Even such a great rise, property price in Romania are still 20-30% lower than the other eastern European countries.

6. After accession to the EU in 2007, the real estate market in Romania has been influenced dramatically. EU funding to Romania has been invested into the infrastructure development in road, hospitals, schools, bridges etc. EU funds will help to create more jobs and therefore potential customers seeking to buy/rent properties.

7. Low tax rates are the other main reason to invest in Romania. Romanian government has set up a flat rate of only 16% for corporation and income tax. Such low and fixed rate of tax is powering Romania to draw more foreign investors seeking for new business places.

Some other secondary factors are also responsible for great investment opportunities in Romania. Romania has great network of international airports with two in capital Bucharest. Developed and fully facilitate ports in Romania is also boosting its economy drastically. Romania has huge network of telecommunication systems equipped with modern telecommunication equipments. Also there are nearly 48 industrial parks.

As far as it looks, the boom is yet to come! Buying property in Romania will be great ROI in near future. So what are you waiting for? Invest now in Romania for your better future.

by Salmaan Taseer

What percentage of my savings shall I invest in stocks? And what percentage shall I invest in bonds or keep in cash or other investment classes like real estate?

The questions in what to invest and how much of your savings to invest are on top of the mind of every investor. Let’s have a look at a much quoted rule of thumb on this topic and what type of tools are available for this on the web.

A much quoted rule

A much quoted rule of thumb and a simplified asset allocation guide on how much to invest in stocks and bonds is the age related rule:

Allocate a percentage of your portfolio equal to 100 minus your age to equity stocks, and invest the rest in bonds. For example, if you were 45 years old, then you would hold 100 – 45 = 55 or 55% of your investments in stocks or stock funds, and 65% percent of your assets in bonds or bond funds.

The background argumentation for this model is that when large cap stocks are held for periods of 15 years or longer, they in general have a better return than bonds. But because of the higher fluctuations in stock prices than in bond prices, stocks offer a higher risk and should be a smaller part of your investments when getting closer to retirement. The assumption is that you need the money when you retire and you cannot afford then that your stocks have lost a lot of value.

The following issues are often highlighted around this simplified model:

-          It only takes into account two assets classes: stocks and bonds. It does not take cash, real estate funds and the difference between large and small cap stocks into account?

-          It looks upon bonds and bonds funds as part of the same class while both have considerable different characteristics; more on this later.

-          It does not take into account how wealthy the investor is and with what risk levels he or she is comfortable. Wealthier investors are often prepared to invest a larger portion of their wealth into more risky but also more rewarding investments than less-wealth investors.

-          It forgoes on the idea that younger people have not only more time to make up earlier losses but have also have more time to lose even more than older people since they have more time till the standard retirement age.

-          It does not take into account that in case of death of the owner of the assets, it could be, from a tax point of view, more favourable to inherit ate stock holdings than cash.

In summary, this much quoted rule of thumb is a very simplified model that could be plainly wrong for a lot of people.

On the internet, you can also easily find automated asset allocation advisors like this one on the CNN Money website. Based on your inputs regarding time horizon, risk tolerance and flexibility, it provides you with a suggested assets allocation over bonds, small cap stocks, large cap stocks and foreign stocks.

A good aspect of the availability of tools like this is that it may prevent people who have no better information to put all their savings in just one asset. Following now such a model, they in any case diversify their investments. But this does not mean that they are only taking risks that they are comfortable with. The problem is that they maybe do not know or understand what risks they are taking.

The issue for me with following an advice like this would be that it is very much a black-box tool. You know what you put in and see what you get out of it, but you do not get an understanding how the tool came to the results. For me to sleep well at night, I want to understand why I would invest in a certain way. Just following the advice of a web application won’t do it for me since it does not provide me clarity on what type of assumptions are behind the advice that I am getting and if those assumptions are even valid for me.

When we want to answer questions like “in what assets to invest” or “how much of our savings to invest”, we consider at Stock Trend Investing the following aspects:

-          Two different types of “risk”

-          Your risk tolerance

-          Inflation and Interest Rate

-          Bonds, Options and other Assets

-          Your presence in the market

Do you want to consider these aspects as well?

by Office of Governor Patrick

Etegameno presents lucrative investment opportunities in Namibia

Etegameno Investments offers three lucrative investment opportunities in Namibia that are expected to yield high returns. Harnessing Namibia’s rich natural resources, Etegameno presents an investment model that turns these abundant resources into wealth, mutually benefiting investors and the natives.

Ranked as number two by The World Travel and Tourism Council, Namibia has the distinction for experiencing the maximum long-term growth in the tourism economy after China. This will positively influence the Namibian Gross Domestic Product in the coming years. The Namibian people will also enjoy increased employment opportunities through growth in tourism.

The three investment opportunities available on Farm Tsumore are:

• The Farm Tsumore Game Lodge
• A Bush to Electricity Enterprise
• The Jatropha Plantation / Biodiesel Refinery

The Farm Tsumore Game Lodge

Farm Tsumore is spread over 4 433 hectares of flatland and hills around the beautiful Lake Otjikoto. Conveniently located just seven kilometers from Tsumeb and 118 kilometers north-east of the Etosha pan, Farm Tsumore has plenty of water and receives its power from NamPower.

The location of the proposed Tsumore Game Lodge is gifted with picturesque natural beauty, abundant game and wild life and rich biodiversity making it a much sought after ecotourism destination for nature lovers.

Attractions include the Etosha National Park, historic local mining towns, safaris, scuba-diving tours, the world’s largest meteorite, Hoba, camping, hiking, and much more. A luxurious African safari lifestyle in a serene yet exciting setting awaits investors!

Jatropha Biodiesel

The oil-rich Jatropha plant grows on Farm Tsumore. Etegameno plans to leverage the Jatropha plant as a precious source of biodiesel, reducing the carbon footprint. Compared to fossil fuels, the processing of the Jatropha plant for biodiesel is much more cost-efficient and releases only one fifth the emissions. The processing of Jatropha oil results in valuable by-products that include latex, fertilizer and feed for livestock.

On a global scale, Jatropha biodiesel will have a major impact as there will be a huge demand for environmentally friendly fuel because of the increasing threat of global warming. The cost of Jatropha biodiesel is around US per 200L barrel. With the production of Jatropha biodiesel, Etegameno will ensure that Namibia’s expenditure on oil imports is drastically reduced. For investors, money invested in the cultivation of Jatropha plants and commercial production of Jatropha biodiesel means extremely profitable returns. The demand for fuel alternatives will always be on the rise and with fossil fuels depleting at an alarming rate, the production of Jatropha biodiesel will help in a big way. Find out more about this investment opportunity.

Bush-to-Electricity

The bush-to-electricity investment opportunity is an innovative investment opportunity for the investor’s portfolio in the form of high returns. The invader bush on Farm Tsumore and surrounding farms, which was viewed as a problem for farmers and livestock is now a lucrative investment option. More than ten million hectares of bush will be converted into an economical electricity generating project that will benefit the natives by generating employment and steady income. The electricity produced will power the area on a long-term basis.

Namibia, among other South African Development Countries, is presently experiencing an electricity shortage that can be fulfilled by renewable energy technologies such as wood gasification. In the bush-to-electricity process, the wood for electric plants will come from the bush. The land thus reclaimed will be used to increase the production of livestock, farming, cultivating Jatropha crops, pasture for livestock and much more. Read more about the bush-to-electricity investment opportunity.

How investors can profit from Farm Tsumore

Investors have the option of investing in one or all three of Farm Tsumore’s investment opportunities and enjoy lucrative returns on investments from the high profit margins. Investors also gain a 40% ownership in the new company with controlling interests and future enhanced shareholding options. Farm Tsumore gives investors a chance to be part of Namibia’s national growth.

Etegameno Investments will manage the entire project from concept to completion and this includes preparing contracts, land leasing, new company registration, liaison with local authorities etc. As a joint venture partner with the new Namibian company, Etegameno will also oversee the day to day operations of the business. Etegameno invites investors to benefit from Farm Tsumore, contact us for more information.

by philcampbell

Etegameno presents lucrative investment opportunities in Namibia

Etegameno Investments offers three lucrative investment opportunities in Namibia that are expected to yield high returns. Harnessing Namibia’s rich natural resources, Etegameno presents an investment model that turns these abundant resources into wealth, mutually benefiting investors and the natives.

Ranked as number two by The World Travel and Tourism Council, Namibia has the distinction for experiencing the maximum long-term growth in the tourism economy after China. This will positively influence the Namibian Gross Domestic Product in the coming years. The Namibian people will also enjoy increased employment opportunities through growth in tourism.

The three investment opportunities available on Farm Tsumore are:

• The Farm Tsumore Game Lodge
• A Bush to Electricity Enterprise
• The Jatropha Plantation / Biodiesel Refinery

The Farm Tsumore Game Lodge

Farm Tsumore is spread over 4 433 hectares of flatland and hills around the beautiful Lake Otjikoto. Conveniently located just seven kilometers from Tsumeb and 118 kilometers north-east of the Etosha pan, Farm Tsumore has plenty of water and receives its power from NamPower.

The location of the proposed Tsumore Game Lodge is gifted with picturesque natural beauty, abundant game and wild life and rich biodiversity making it a much sought after ecotourism destination for nature lovers.

Attractions include the Etosha National Park, historic local mining towns, safaris, scuba-diving tours, the world’s largest meteorite, Hoba, camping, hiking, and much more. A luxurious African safari lifestyle in a serene yet exciting setting awaits investors!

Jatropha Biodiesel

The oil-rich Jatropha plant grows on Farm Tsumore. Etegameno plans to leverage the Jatropha plant as a precious source of biodiesel, reducing the carbon footprint. Compared to fossil fuels, the processing of the Jatropha plant for biodiesel is much more cost-efficient and releases only one fifth the emissions. The processing of Jatropha oil results in valuable by-products that include latex, fertilizer and feed for livestock.

On a global scale, Jatropha biodiesel will have a major impact as there will be a huge demand for environmentally friendly fuel because of the increasing threat of global warming. The cost of Jatropha biodiesel is around US per 200L barrel. With the production of Jatropha biodiesel, Etegameno will ensure that Namibia’s expenditure on oil imports is drastically reduced. For investors, money invested in the cultivation of Jatropha plants and commercial production of Jatropha biodiesel means extremely profitable returns. The demand for fuel alternatives will always be on the rise and with fossil fuels depleting at an alarming rate, the production of Jatropha biodiesel will help in a big way. Find out more about this investment opportunity.

Bush-to-Electricity

The bush-to-electricity investment opportunity is an innovative investment opportunity for the investor’s portfolio in the form of high returns. The invader bush on Farm Tsumore and surrounding farms, which was viewed as a problem for farmers and livestock is now a lucrative investment option. More than ten million hectares of bush will be converted into an economical electricity generating project that will benefit the natives by generating employment and steady income. The electricity produced will power the area on a long-term basis.

Namibia, among other South African Development Countries, is presently experiencing an electricity shortage that can be fulfilled by renewable energy technologies such as wood gasification. In the bush-to-electricity process, the wood for electric plants will come from the bush. The land thus reclaimed will be used to increase the production of livestock, farming, cultivating Jatropha crops, pasture for livestock and much more. Read more about the bush-to-electricity investment opportunity.

How investors can profit from Farm Tsumore

Investors have the option of investing in one or all three of Farm Tsumore’s investment opportunities and enjoy lucrative returns on investments from the high profit margins. Investors also gain a 40% ownership in the new company with controlling interests and future enhanced shareholding options. Farm Tsumore gives investors a chance to be part of Namibia’s national growth.

Etegameno Investments will manage the entire project from concept to completion and this includes preparing contracts, land leasing, new company registration, liaison with local authorities etc. As a joint venture partner with the new Namibian company, Etegameno will also oversee the day to day operations of the business. Etegameno invites investors to benefit from Farm Tsumore, contact us for more information.

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