Question

In: Economics

Define and explain Direct and Indirect Investment. What investment vehicles do firms use to obtain the...

  1. Define and explain Direct and Indirect Investment. What investment vehicles do firms use to obtain the financing for investment?

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Expert Solution

Indirect investment refers to a way of making real-state investments without directly investing in the land. Indirect investment, like shares, funds or private equity, may be achieved in several ways. Many investors involved in indirect investment will do so through a company or contractor with expertise in this type of investment. Direct investment refers to an investment that is large enough to influence the future decisions of a business. It is often a majority ownership, but often it is just a small minority ownership.

Direct investments have the advantage of being more appealing to institutional investors, as they are typically larger. Investors have greater flexibility in decision-making and can select the asset with full disclosure of information according to criteria such as location, asset type and strategy. Nevertheless, direct investment is typically less liquid. Investors will keep the asset for years, and they can not sell it in the meantime.

The greatest advantage of indirect investment is that it enables investors to spend smaller sums than direct investment. In fact, it becomes more liquid, as it helps investors to purchase and sell their stock quickly and needs reduced administration costs. In both, however, investors have little leverage over the investments and little information.

A portfolio of assets is a collection of property investments, owned by one person or one corporation and sharing the same financial objectives. The benefits of having a portfolio of assets over a single asset are that expectations of returns can be diversified; if one asset does not meet its goal, other investments may compensate. A portfolio's cumulative projected returns aim for a reasonable return over time from various assets.


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