Discuss the reasons why corporations invest in securities.
Corporations invest in securities because they need for their money to make money. A corporation with cash in excess of its operating costs cannot simply let it lie fallow, and the choices a corporation makes are among securities, capital expenditure, stock dividends (if there are stockholders) paying off debt, or buying back stock. Sometimes expenditures are allocated among all of these, but each one must be evaluated carefully, to maximize return and minimize risk. Securities are often a good choice because they can represent a less risky investment than others, a more sure means of making money, for example, than beginning a new product line or expanding an existing product line during a recession. When a substantial capital investment is considered, it is sometimes even possible to borrow money for that investment at a lower rate than the rate of return on securities. Major corporations have billions of dollars flowing in at any given moment, and if those billions are not working in some way for the corporation, the corporation is losing.
Corporations have certain financial motive of maximising wealth. thus they invest in fixed capital, securities, projects and others. i have three reasons for investment in securities. they are:
- managing portfolio investment of corporation
- minimising risks and maximising profits
- secured investment.