Explanation It is the amount which is left after meeting up all the personal expenses. In case of those individuals who are financially stable, they have an amount of money left after spending for personal expenses. Thus their savings is positive. For those individuals who generally depend on taking credits and loans to meet up all the needs and requirements, their savings figure is negative. Savings can be turned into increased income for an individual by the investment of the saved amount of money. Principles of savings Every individual should save a certain amount of their money for the uncertain tough times in future. There are various ways of utilizing the savings to have an increased income. Compounding is the most attractive among them. The method of investing the savings and getting the interest, calculated on the basis of compounding technique, is highly profitable. However the savings should be utilized in such a manner that it gives high return but involves minimum amount of risk. AER Annual equivalent rate is the amount of interest which is calculated based on the assumption that the payment of interest is combined with the actual or original balance and then the next interest payment is again based on the higher account balance. This actually means that the interest is getting compounded many times in a year depending on the number of interest payments made. In United Kingdom, the interest that is received from the investment in the savings account is calculated in the method of AER. It is calculated as: AER= (1+ r/n) ? -1 Where, n= number of times r= gross interest rate Example Interest on fixed deposits Fixed deposit is considered to be a risk free mode of investing the savings. Fixed deposit actually refers to a savings account or the certificate of deposit which continues to pay a fixed amount of interest until the completion of the maturity date. The amount invested in the fixed deposit cannot be withdrawn by the investor prior to the completion of the maturity period. They can only be withdrawn with an advanced notice. Benefits The fixed deposits of the reputed banks and other financial institutions are regulated or controlled by the banking regulators of that respective country where the bank originates. This makes the investment very secure (Swart, 2004). The fixed deposits help the investors to earn a fixed amount of income as interest for the entire tenure, which gets compounded after every quarter. Thus the investors who prefer having an income on the regular basis should choose for investing in the fixed deposits. This mode of investment of the savings saves the tax of the investors and provides them with high return. This type of investment is preferred by the investors who wish to obtain a fixed amount of interest for a particular period of time with minimum or no risk involvement. Government bonds The government bond is a debt security which is issued by the government for supporting the government spending, very commonly used in the domestic currency of a particular country. Let us take an example: the federal government bonds in United States include Treasury bond, savings bond etc. Before
Cite this document
(“Finance: Savings, Borrowing and Investment Essay”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/96615-finance-savings-borrowing-and-investment
(Finance: Savings, Borrowing and Investment Essay)
“Finance: Savings, Borrowing and Investment Essay”, n.d. https://studentshare.net/finance-accounting/96615-finance-savings-borrowing-and-investment.
Cited: 0 times
Savings, Borrowing and Investment Table of Contents Table of Contents 2 Introduction 4 Savings 4 Definition 4 Explanation 4 Principles of savings 4 Example 5 Evaluation 6 Borrowing 6 Definition 6 Explanation 6 Principles of Borrowing 7 Example 7 Evaluation 8 Investment 8 Definition 8 Explanation 8 Principles of Investment 8 Example 9 Evaluation 10 References 11 Introduction The project deals with outlining the principles related to savings, borrowing and investment which should be considered and followed by “True Love Endures” to continue its operations and achieve success in the industry…
The corporate bond market can help in improving the financial stability of an economy and provide competition in the private sector as well. The corporate bond market can also help in enhancing the financial sector stability by reducing or mitigating the interest risk and rollover risk for the borrowers.
It is also a tool explaining consumers’ patterns, which are crucial in financial budgeting. Knowledge of the patterns associated customers helps the business in avoiding unviable investments (Shaw & Schaubroeck 2003). It makes a company offer services that attracts spending when the customer is at the spending stage and navigate together with the customer’s need in future.
Usually the government exercises its borrowing authority when there is a shortfall between its expenditure. This occurs after Canadian Parliament authorizes the government to do so through main and supplementary estimates and in interim supply, and its revenues.
Interest rates on 10-year U.K. government bonds are expected to rise 10 to 15 basis points to 4.65%, some 40 basis points higher from their lowest level in January 2006 (BOE, 2006, p. 1; Economist, 2006, p. 97).
Interest rates determine the cost of borrowing money.
A diverse empirical literature is provided by research based on industry level-data [Rajan and Zingales 1998; Wurgler 2000], time-series research [Neusser and Kugler 1998; Rousseau and Wachtel 1998, 2000], and econometric investigations that use panel techniques [Beck, Levine, and Loayza, 2000] supports the view that financial systems are essential for economic growth.
Savings on the other hand is accumulating wealth for later use or incase of emergency. In economics savings is considered as a prerequisite of investment. Wealth is the accumulation and abundance of resources an individual owns. It can terms of money, infrastructure or shares in the stock market.
In general people with lower income tend to have a higher propensity to spend and any changes in the government policies with respect to direct taxation and level of welfare benefits will have a serious impact on the propensity to spend. Normally the following are the key factors that determine the level of consumer spending and the resultant saving potential in any economy (Tutor2U):
osure systems influence financial development and hence economic growth, as shown by researches done on cross-country level [King and Levine 1993a,b; Levine and Zervos 1998; LaPorta, Lopez-de-Silanes, and Shleifer 2000], as well as by firm-level studies [Demirguc-Kunt and