Financial Markets and Risk Essay Example | Topics and Well Written Essays - 1000 words - 2

Financial Markets and Risk - Essay ExampleFor investors who are moderate on their risk taking mentality have hybrid products to choose from. This report bequeath deal with various investment products that are provided by financial institutions and the implications of marketplace matter to rates on investors and banks. Long term savings and investment products provided by Retail banks and Non Banking Financial Intermediaries or NBFCs Some of the popular massive term investment products provided by retail banks and NBFCs are as follows. Fixed Deposits Fixed deposits, as the name signifies, have a fixed elevate during which the investments cannot be withdrawn. Withdrawal is possible in between the tenure, but in such a case the investor will have to forgo certain benefits as early withdrawal charges. Bonds Bonds are debt instruments that are issued by goernment or corporate. Bonds are fixed income securities that provide a fixed rate of return over a period of time. As a result, i t is less risky too. Debentures Debentures are similar to bonds in its nature with the whole difference being they are issued only by corporations. Debentures provide fixed rate of saki and comes with a lock in period of usually more than 2 years. mutual Funds Mutual fund is a collective fund management system in which the amount collected from a large number of investors is invested into certain asset classes base on the nature of the fund. The investors who invest in mutual funds will get units of the fund of which the value depends on the price movement in the assets they are invested in. Pension Funds A pension fund is a very long term investment product that is intended to give retirement income for the investors. Investors feed a certain amount on fixed intervals which is accumulated and invested in safe asset classes. These are returned to them at the time of their retirement. Implications of increase in command interest rates on individual savers and investors An incre ase in the general interest rates will have a considerable impact on the investment portfolio of investors and savers. When interest rates are rising, both businesses and consumers will cut back on spending (Investopedia, 2011). The cut back on spending by customers and businesses will lead to less corporate earnings than before. The poor corporate earnings will cause the stock prices to drop at the overall market. A fall in the stock market will affect all the investment products that have the investment pie in stocks. Investors and individual savers, who have invested directly in the stock markets or invested in the stock markets through mutual funds and other products, will see their corpus going down. A rising interest rate can also affect the investors in terms of the low risky instruments like bonds. The prime relationship to be understood is that there is ever so an inverse relationship between the interest rates and bond prices. When the market interest rate rises, the bond s with lesser interest rate than the market rate will turn to be less attractive for the investors. The investors receive interest at a lower rate as compared to what is offered by the market. This will not be a big issue if the investor holds the bond until its maturity. But any plans to sell the bond before the maturity will reap fewer benefits when the market interest rates are higher (Williams, 2009). The investor can definitely hold on to the bonds