In a previous article, we introduced the CFA Institute
Investment Foundation Program (Read
more here). It is a free program
designed for anyone who wants to enter or advance within the investment
management industry, including IT, operations, accounting, administration, and
marketing. Candidates who successfully
pass the online exam earn the CFA Institute Investment Foundations Certificate.
There are total of 20 Chapters in 7 modules, covering all
the essential topics in finance, economics, ethics and regulations. This series of articles will highlight the
core knowledge of each chapter.
Chapter 1 provides an overview of the investment industry.
The learning outcome of chapter 1 is as follows:
·
Describe the financial services industry;
·
Identify types of financial institutions,
including banks and insurance companies;
·
Define the investment industry;
·
Explain how economies benefit from the existence
of the investment industry;
·
Explain how investors benefit from the existence
of the investment industry;
·
Describe types and functions of participants of
the investment industry;
·
Describe forces that affect the evolution of the
investment industry.
The financial system helps link savers who have money to
invest and spenders who need money. Within the financial system, the financial
services industry offers a range of products and services to savers and
spenders and helps channel funds between them (Exhibit 1).
The type of financial services includes financial planning,
investment management, investment information, trading and custodial (Exhibit
2).
The main financial institutions are banks and insurance
companies. Banks collect deposits from savers and transform them into loans to
borrowers. Insurance companies are not only financial intermediaries that
connect buyers of insurance contracts with providers of capital who are willing
to bear the insured risks, but also among the largest investors.
The investment industry provides numerous benefits to the
economy, including the efficient allocation of scarce resources, better
information about investment opportunities, products and services that are
appropriate for providers and users of capital, and liquidity.
The benefits for investors of a well-functioning investment
industry include a broad range of investment products and services that meet
their needs, competitive markets that provide liquidity and keep transaction
costs low, timely and efficient disclosure of information, and the ability to
modify their risk exposures.
Four key forces that drive the investment industry are
competition, technology, globalisation, and regulation (Exhibit 3).
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