a) Explain the difference between short-term and long-term investing both from the accounting definition and from...

a) Explain the difference between short-term and long-term investing both from the accounting definition and from the decision to invest.

b) Describe a strong investment policy statement; what to ensure is included in the policy statement and why.

Solutions

Expert Solution

A line difference from accounting point of view is that " Investment into assets which are required for day to day operations of a business is called short term investment, and these investments are easily liquidated and last for maximum period of one year. Long term investment in assets means investment in long term physical assets like investment in building, plant, equipment etc. These equipment last for many years and not eaily liquidated.

Decision to investment point of view Investment are based on Investment horizon, if funds are available for short while, then it can be invested for shorter period so that some additional return can be earned on idle cash or funds. While Long term investment are made when funds are invested with the objective of long term planning and funds are committed to achieve some future objective like investment in pension funds for old age planning.

b- An investment policy statement is a document which provide detailed information regarding asset allocation, risk tolerance and liquidity requirements. it provides the guideline for a relationship between a portfolio manager and a client and general rules for the manager. A sound Investment policy statement contains disciplined investment canon for a consistent, strategic approach to managing the investment portfolio through successive committee members.

jeff jeffy answered 1 year ago

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