Please reply to this thread in 450 to 500 words and include 2 peer-reviewed references and one biblical integration.
The parable of the talents is a biblical story that describes a scenario that relates to present day investment. The master left the servants with 5 gold bags, 2 and 1 each respectively. There was no specification of the exact period that the master would be away. Each servant had to handle the gold in the manner he understood. The servant with 5 and 2 gold bags each invested and multiplied two times. When their master returned, he was impressed and rewarded them. The servant with one gold bag hid his and returned to the master without interest. His action was rebuked and the only gold bag he had was taken from him and given to the one with 5. This analogy illustrates strategies of investment and rewards in profits and losses.
Money Market Instruments
‘Money market’ is a term used to refer to a market in which short-time period economic assets with a maturity of as much as one year are traded. The assets are a close substitute for cash, and money trade is done within the primary and secondary market. In other words, the money market is a mechanism that facilitates the lending and borrowing of instruments which are generally for less than 12 months. High liquidity and short maturity time are common features that are traded in the cash market. The non-banking finance companies (NBFCs), commercial banks, are the components that make up the money market. The cash market is a part of a larger monetary market which includes numerous smaller sub-markets like bill market, acceptance market, call cash market. Other than that, the money market deals are not out in cash/cash, however other instruments like trade bills, treasury bills papers, promissory notes, and many others. However, the money market transactions cannot be accomplished via brokers as they must be completed through mediums like formal documentation, oral or written conversation.
As the name indicates, a money market device is an investment mechanism that permits banks, corporations, and the government to satisfy massive, however short-term capital wishes at a low cost. They serve the dual reason of allowing borrowers to meet their short-time period requirements and providing smooth liquidity to lenders. Some examples of these instruments include Treasury Bills, Repurchase Agreements, Banker’s Acceptance, Commercial Papers and Certificate of Deposits (Bodie, Kane, & Marcus, 2017).
Fixed income/ Bond Instruments
Fixed income securities are debt tool that gives returns within the form of regular, or fixed, interest bills and repayments of the principal whilst the security approaches maturity. The instruments are given by using the state, corporates, and other institutions to fund their operations.
Fixed profits security bills are known to investors in advance (Murphy, 2020). These securities have periodic returns which might be also produced over a distinctive time frame (Bodie, Kane, Marcus, 2017). These bills are given to investors in the shape of coupon payments and are normally made semiannually. Bonds, saving bonds, and treasury bills are forms of fixed-earnings securities.
An investor turns into an owner or shareholder in an enterprise once he/she purchases equity within the commercial enterprise (Bodie, Kane, & Marcus, 2017). The equity in a business enterprise can be observed on the balance sheet and is one of the most used financial metrics to get the right of entry into a business enterprise’s monetary health (Murphy, 2020). Shareholder equity may be both negative and positive. If the equity is negative, then the corporation’s liability is more than the agency’s assets. If the equity is positive, then the business enterprise’s legal responsibility is not passed by way of the enterprise’s property. The two servants who managed to multiply the golds were given more. Their efforts to double what was given unto them can be likened to investor purchasing equity. They become shareholders of their master’s happiness.
Mutual price range
Mutual fund is the common term used to refer to an open-cease funding employer (Bodie, Kane, & Marcus, 2017). Mutual finances permit investors to make investments into a collection of shares, bonds, and other securities that will not be as easy to supply on one’s personal. The baggage of gold was no longer a diverse security and could have only been one part of a mutual fund in the parable.
A derivative is a monetary settlement, whereas an option is a unit within a derivative option. An option funding occurs whenever an investor has the right, and no longer the duty, to purchase or sell at a certain price (Farley, 2020). There are two categories of training: call options and put options. Call options permits the holders to purchase assets at an agreed-upon price within a particular timeframe and put options permit the holders to sell at a stated price inside the confines of a specific time frame (Bodie, Kane, & Marcus, 2017). The two servants who multiplied their gold must have used this technique to multiply whatever was in their possession as was expected from them by their master.
Relationship between risk tolerance/avoidance to return strategies of the above-mentioned investment strategies
Risk tolerance refers to the quantity of loss an investor is ready to deal with when making an investment choice. Numerous factors determine the extent of risk an investor can accept to take. Understanding the risk tolerance degree allows investors to plan themselves and will guide how they make investments. For instance, if an individual’s risk tolerance is low, investments can be made conservatively and could encompass extra low-risk investments and much less excessive-risk investments. Risk avoidance on the other hand is a place of risk management in which the intention is to eliminate risk and no longer just to reduce it. In place of mitigating present risk, it targets to remove the source of the risk altogether, sometimes changing it with a smaller and viable risk. In the application of the investment strategies mentioned above, investors are aware of the risks involved. Measures are put to avoid risks and at the same time, the investors being aware of possible risks, invest with what they can afford to lose. Repayments plans are made to cushion the investors.
Within the parable of talents, the master in no way became specific about how long he could be away. A financial market tool might have been the most appropriate tool to apply for the short period the master was away. The bible verse Proverbs 11:28 excellently describes financial phrases and the parable of the gold. This verse states, “Whoever puts his trusts in his earthly riches will not stand, but, the holy shall be like a green leaf”. The master became in the parable looked greater inclined to multiply his wealth. In business terms, he may be called a smart investor. The multiplication of the gold by the servants showed that there were money market instruments in the ancient days.