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Finance: Savings, Borrowing and Investment - Essay Example

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Finance: Savings, Borrowing and Investment

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 The amount invested in the fixed deposit cannot be withdrawn by the investor prior to the completion of the maturity period. They can only be withdrawn with an advanced notice.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 ...Show more
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Summary

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…
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