Default risk
Default risk is the most worrisome of the entire investment risks. This is a risk of defaulting in both the principal and the interest. For this investment, non-payment of accrued interest, because there is no security that is attached to such risk and nothing can be done to recover your interest, except on by going to court to file a case on default of accrued interest or premium which may be a long process for financial stability of any investment. Keeping in mind the recession that hit U.S. and General Motors in particular, this kind of investment may not be good and given that the company need to full recover, given also that its credit rating is not good (LaBonte Purcell, 2009).
Business risk
Business risk is associated with the performance of the company venture at the market. The market value of a venture in bonds will highly rely on the performance of the corporation one is investing in. The public image of General motors is very negative at the moment because of it collapse, many people view it to b unstable business and thus its performance at the market may be affected by this, making its market value to decline sharply. Investing in this business at the moment will not be good because of its poor market value. Given that there is possibility of failure when a serious recession hits American again, making an investor to get nothing in return.
Liquidity risk
An investment is viewed to be liquid when its easily converted into cash and with a minimal value loss. But with the issues of recession has made many companies to be unstable in their business such as General motors, which gives possibility of failurecollapse or premature termination of company businesses. When this happen investor will lose the value of his money-due to liquidity risk-because of difficult in converting a company asset in cash easily or sale the security at the market (LaBonte Purcell, 2009). Putting into consideration the status of liquidity risk, its good to keep off any investment with General motors, given that it may plan to venture in long tem assets which are hard to convert into cash because of loss its recent loss in value at the market.
Inflation risk
The current trend of increasing inflation around the world, have made the global economy to be very unstable. Investing in bonds with General motors may not be good with these skyrocketing prices, because this rises tend to erode the purchasing power of your capital.
Political risk
The move by government to regulate the market operation could affect the economic performance of companies this could be through legislation, a move that could be imposed to a business you have invested in. This risk is not that bad, as government legislations are meant to restructure or stabilize the economy. This could not deter you from investing in the General motors.
(1) A fixed-rate insurance annuity
A fixed rate insurance annuity is a very good investment given that they have good yields compared to bonds, with interest rates varying from 3-15, more liquid and is tax deferred. This could be a sound venture because of its low risk. The initial sum of 100,000 is a considerable amount, given that deposit for this investment range between 5000-100000. This kind of investment only fits the retirees or those individuals who are suspicious of market volatility, making it effective only for few individuals.
(2) An equity-indexed mutual fund
This kind of investment is believed to be hybrid this makes it to allow investors to realize high return on their initial investment sum. The fund can either be active or passive, when active, the fund manger will select only sticks that the fund can be invested in, and this reduces the risk associated with non-performing stocks. Equity-indexed mutual fund is less expensive as compared to other mutual fund and creates a way of reducing risk through portfolio diversification. The only problem to this fund is that is prone to errors made by the fund manager.
(3) Gold bullion
It believed that any investing in gold bullion is a very lucrative business, given that its safe and secure. The cost associated with the buying and selling of gold is termed to be low. The demerit of such an investment is that the storage cost tends to be high due to wrap up cost as well as regular charges on storage. Sometimes the operating cost may go high depending on the market volatility.
Problems of mortgage-backed securities market.
This has generally stressed the mortgage markets which have been seen shoot up sharply in the recent past. Other problems are a rise in foreclosure rates and property tax liability, it has also led to a decline in liquidity and funding sources in the credit supply market of mortgages. Moreover, this has also led to discharge of stern measures by the federal government to commercial banks regarding mortgage credit. LaBonte and Purcell (2009) argue that new market solutions have been introduced, such as introduction of tax regulatory body (department) to coordinate and set property tax. The tightening of credit standards will help to disqualify a considerable number of individuals who are credits unworthy, a move that is designed to avoid cases of loses in this industry. The release of forecast has provided market players with relevant information regarding foreclosure trends at the market.
Problems of recession
The claim by economists that U.S. economy is not vulnerable to any particular severe recessions is not true. Personally, I disagree with this claim given that U.S. economy is very sensitive instability in the global market. This means that any recession that hits the world will automatically hit U.S. There are other issues for concern that recession might worsen the U.S. severely because of the continued reduction of profit in recent past, a decline that is projected to continue for sometime causing a negative impact on business expenditures (Moseley, 2002). Business indebtedness is also to continue skyrocketing at the market something that could negatively impact on investment spending because of default risk. Furthermore, the rises in household indebtedness that are being experienced on auto loans and credit card debt is likely to strain consumer spending and all this will make U.S. economy to be vulnerable to cases of recession.
Default risk is the most worrisome of the entire investment risks. This is a risk of defaulting in both the principal and the interest. For this investment, non-payment of accrued interest, because there is no security that is attached to such risk and nothing can be done to recover your interest, except on by going to court to file a case on default of accrued interest or premium which may be a long process for financial stability of any investment. Keeping in mind the recession that hit U.S. and General Motors in particular, this kind of investment may not be good and given that the company need to full recover, given also that its credit rating is not good (LaBonte Purcell, 2009).
Business risk
Business risk is associated with the performance of the company venture at the market. The market value of a venture in bonds will highly rely on the performance of the corporation one is investing in. The public image of General motors is very negative at the moment because of it collapse, many people view it to b unstable business and thus its performance at the market may be affected by this, making its market value to decline sharply. Investing in this business at the moment will not be good because of its poor market value. Given that there is possibility of failure when a serious recession hits American again, making an investor to get nothing in return.
Liquidity risk
An investment is viewed to be liquid when its easily converted into cash and with a minimal value loss. But with the issues of recession has made many companies to be unstable in their business such as General motors, which gives possibility of failurecollapse or premature termination of company businesses. When this happen investor will lose the value of his money-due to liquidity risk-because of difficult in converting a company asset in cash easily or sale the security at the market (LaBonte Purcell, 2009). Putting into consideration the status of liquidity risk, its good to keep off any investment with General motors, given that it may plan to venture in long tem assets which are hard to convert into cash because of loss its recent loss in value at the market.
Inflation risk
The current trend of increasing inflation around the world, have made the global economy to be very unstable. Investing in bonds with General motors may not be good with these skyrocketing prices, because this rises tend to erode the purchasing power of your capital.
Political risk
The move by government to regulate the market operation could affect the economic performance of companies this could be through legislation, a move that could be imposed to a business you have invested in. This risk is not that bad, as government legislations are meant to restructure or stabilize the economy. This could not deter you from investing in the General motors.
(1) A fixed-rate insurance annuity
A fixed rate insurance annuity is a very good investment given that they have good yields compared to bonds, with interest rates varying from 3-15, more liquid and is tax deferred. This could be a sound venture because of its low risk. The initial sum of 100,000 is a considerable amount, given that deposit for this investment range between 5000-100000. This kind of investment only fits the retirees or those individuals who are suspicious of market volatility, making it effective only for few individuals.
(2) An equity-indexed mutual fund
This kind of investment is believed to be hybrid this makes it to allow investors to realize high return on their initial investment sum. The fund can either be active or passive, when active, the fund manger will select only sticks that the fund can be invested in, and this reduces the risk associated with non-performing stocks. Equity-indexed mutual fund is less expensive as compared to other mutual fund and creates a way of reducing risk through portfolio diversification. The only problem to this fund is that is prone to errors made by the fund manager.
(3) Gold bullion
It believed that any investing in gold bullion is a very lucrative business, given that its safe and secure. The cost associated with the buying and selling of gold is termed to be low. The demerit of such an investment is that the storage cost tends to be high due to wrap up cost as well as regular charges on storage. Sometimes the operating cost may go high depending on the market volatility.
Problems of mortgage-backed securities market.
This has generally stressed the mortgage markets which have been seen shoot up sharply in the recent past. Other problems are a rise in foreclosure rates and property tax liability, it has also led to a decline in liquidity and funding sources in the credit supply market of mortgages. Moreover, this has also led to discharge of stern measures by the federal government to commercial banks regarding mortgage credit. LaBonte and Purcell (2009) argue that new market solutions have been introduced, such as introduction of tax regulatory body (department) to coordinate and set property tax. The tightening of credit standards will help to disqualify a considerable number of individuals who are credits unworthy, a move that is designed to avoid cases of loses in this industry. The release of forecast has provided market players with relevant information regarding foreclosure trends at the market.
Problems of recession
The claim by economists that U.S. economy is not vulnerable to any particular severe recessions is not true. Personally, I disagree with this claim given that U.S. economy is very sensitive instability in the global market. This means that any recession that hits the world will automatically hit U.S. There are other issues for concern that recession might worsen the U.S. severely because of the continued reduction of profit in recent past, a decline that is projected to continue for sometime causing a negative impact on business expenditures (Moseley, 2002). Business indebtedness is also to continue skyrocketing at the market something that could negatively impact on investment spending because of default risk. Furthermore, the rises in household indebtedness that are being experienced on auto loans and credit card debt is likely to strain consumer spending and all this will make U.S. economy to be vulnerable to cases of recession.
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