Investment is a term with several meanings related to finance and economics. The term is associated with the accumulation of a form of assets with an expectation of future profit. Sometimes, the investment is also known as capital investment.
Based on economic theory, investment means the purchase (and production) of capital goods which are not consumed but used for future production (production of goods). For example, building a railroad or factory. Investment is a component of GDP by the formula GDP = C + I + G + (XM). The investment function in that aspect is divided in non-residential investment (such as factories and machinery) and residential investment (new house). Investment is a function of income and interest rates, see the relation I = (Y, i). An increase in income will encourage greater investment, where the interest rate, the lower the interest for investment as it will be more expensive than borrowing money. Even if another company chose to use its own funds for investment, the interest rate represents an opportunity cost of investing those funds rather than lend to earn interest.
Some investment products known as securities or securities. Definition effect is a form of ownership instrument transferable in the form of securities, stocks / bonds, evidence of indebtedness (Promissory Notes), interest or participation in a collective agreement (mutual funds), the right to buy a stock, the warranty for the purchase of shares in future or instruments that can be traded.
Forms of investment include:
- Land investment – is expected to increase in population and land use; land prices will rise in the future.
- Investment in education – with increased knowledge and skills, job search and revenues are expected to be greater.
- Investment in shares – the company is expected to benefit from the work or research.
- Foreign currency investments – expected investors will benefit from the strengthening of foreign currency exchange rate against the local currency
Besides being able to add a person’s income, investments also carry financial risk if the investment fails. Investment failure is caused by many things, including the factor of safety (both from natural disasters or caused by human factors), or the rule of law.