Given 100,000 dollars, it is important to make a decision on the right investment decision so as to make the maximum possible profits from the investment. One can choose from a number of securities which are classified into money market securities, capital market securities or derivative securities (Atack and Larry, Pg. 76). Money market securities are those securities that facilitate the sale of short term debt securities. They have a maturity of one year or less.
Capital securities on the other hand facilitate the sale of long term securities such as bonds, mortgages, stocks and mortgage backed securities. Bonds are issues by the treasury or by the government agencies (Madura, Pg. 163). They can also be issued by corporations which want to raise funds to expand their operations. Mortgages on the other hand are obligations that are created with the aim of purchasing real estate, while mortgage backed securities are those debt obligations that represent claims on a package of mortgages. Finally, stocks are documents that warrant partial ownership in corporations that issue them (Bhole, Pg. 46). The returns of these securities are influenced by the interest rates prevailing in the economy at particular times. The performance of the various corporations will also influence the returns of these securities (Madura, Pg. 249). When the performance of the corporation is high, the rate of returns will also be high and it will be worth investing in them.
Derivative securities are financial contracts whose values are derived from the values of the underlying assets. They could be for the purpose of speculation or risk management and hedging. An investor is able to speculate on the movement of prices of assets without necessarily buying the assets (Madura, Pg. 341). These securities also help in adjusting the risk of their existing investments in securities.