Portfolio of securities in institutions. In the course of its current activities, the bank may allocate part of its resources to portfolio management. Depending on the intention to own these securities, the accounting treatment may differ in different situations. In general, investments made with the goal of holding on a long-term basis are considered “financial assets” that are less liquid than short-term trade investments and therefore are treated differently.
What is an investment portfolio? The accounting standard NC 07, concerning investments, defines the general rules for distinguishing and the mode of investment. These rules apply, for the most part, to banking institutions. However, the specific activities of these institutions, as well as the size and variety of their securities mean that special rules should govern investment.
The purpose of this Standard is to define specific rules applicable to bank books managed by banking institutions.
Scope This Standard shall be applied for accounting by banking institutions, as defined by the applicable rules governing banking activities, of securities transactions conducted in the form of: – transferable securities – vouchers for treasury and other negotiable debt securities – instruments of the interbank market – and, as a rule , all receivables represented by securities traded in the market.
Although in some cases it is not always easy to distinguish between transactions with securities conducted by a banking institution, ordinary credit operations, securities acquired by a bank and having the nature of loans are treated as customer loans and therefore are not subject to this Standard. This is the case of holdings that the bank acquires or signs, and in accordance with which during the acquisition or subscription it concludes an agreement with the issuing company, providing for the repurchase of the same shares by a third party. no one, usually a promoter, after one. a certain period and at a pre-agreed price based on a discount rate that does not take into account the value of the issuing company at the time of the buyback or the market value when the shares are quoted on the market.
To better understand the rest, the reader must master some knowledge of investing. Since this is an extensive subject that can be the subject of many books, we will not go into details here.
How to build an investment portfolio? Before placing money, you must choose whether you want to be a lender or an owner. Lender status. The word lender refers to a person who lends money to a borrower in exchange for interest income. This is what most investors who take the first steps do. Here are some examples of investments offered to these people: Fixed-term deposits and guaranteed investment certificates: an investor provides money to a bank, credit union or trust company in exchange for a loan. interest income. The interest rate is usually low, because this form of investment poses little risk. In fact, the investor in all senses and goals is confident that he will be able to return his investment and earn interest. This is the most famous and most affordable type of investment: just meet with an agent from a financial institution and it will all be over in ten minutes! So you can create your own investment portfolio.
Property status is granted to those who own the legal acts of the company. Most often they are shareholders of commercial companies. These securities are traded on various exchanges in the world. Landlords do not receive interest income because they are not creditors to the corporation. Their income consists of dividends paid by the company to its shareholders, part of the company’s profit. The return also depends on the value of the shares. When the stock price rises, the owner’s capital increase increases. But in order to get this profit, the owner must sell his shares.
This type of investment, as a rule, is more risky than the investment of lenders, for the following reasons: the rate of return is unknown and uncertain. Companies are not required to pay dividends. In addition, the value of shares may fall rather than grow, which is reflected in the loss of capital. In case of financial difficulties, the shareholders are the last to restore their rate. Lenders go first. Ownership of real estate (apartment buildings, land, etc.) Or personal business – this is another form of investment owned by the investor.