The monetary financial system Essay Example | Topics and Well Written Essays - 1000 words

The monetary financial system of rules - Essay ExampleHowever, these enthronements have a d knowledgeside adventure of underperformance and lack of control etc. There ar two types of collective investment moneys open ended investments and closed ended investments. In the open ended investments the subjugate of sh ars or building blocks is not icy and the fund can issue unlimited amount of sh ars/units. However, as the gens suggests, in closed ended investments the number of shares or units issued is fixed. The unit trust and investment trust are examples of collective investment institutions with certain notable differences which are explained as follows. An investment in unit trusts is a method whereby a small investor can form part of the share market without being forthwith involved. (Swart, 2007, p.153) In contrast to unit trust, investment trusts are public limited companies whose business is the investment of pecuniary resource in financial assets. (Buckle and Thomps on, 1992, p.125) Both the unit trust and the investment trusts are pooled investments that aim towards diversification of risk for the investor. The individual investor benefits from the knowledge and expertise of the trust managers for which the trust charges fees to its unit holders in the form of annual charges. monetary institutions and intermediaries play an important role in the management of the unit and investment trusts. ... The unit trusts have been much popular in the past with investors preferring open ended units as opposed to closed ended in the case of investment trusts. Investment trusts are allowed to borrow for investment, however, this facility is not present with the unit trusts. whole trust is managed by a trustee where the investment trust is a company listed on the exchange. In terms of pricing, unit trusts are always valued on their net asset value (NAV) whereas investment trust can trade both at a premium or discount to their NAV. therefrom demand and su pply forces have no consequences on the unit trust but affect the prices of the investment. The unit trust issues unit which are not tradable to the third party whereas due to the listing on the bear exchange, investment trusts units are tradable. In terms of the fee structure, the investment trust charges as lower as compared to the unit trust. Thus, with the above mentioned similarities and differences, it is up to the investors analysis and nature to choose between unit trust and investment trust. 2. Firms could raise long term finance issuing shares and bonds. Evaluate the pros and cons of each? Companies need to generate funds on long term basis in order to operate in the market. The two prefatory options for raising equity from the market are bonds and shares. The bond is a long term debt instrument with fixed interest payments issued by the issuer or the borrower of the funds which can be the government or any company. The bondholders are entitled to the fixed interest pa yments along with the return of their principle. They do not hold the right to own the company and are the first ones to be paid off at the time of bankruptcy. When the company issues shares for