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FRM-1 Study Notes

Consumption vs. Investment Assets

  • Investment assets
    • Assets held for investment purposes by significant numbers of investors.
      (examples: stocks, bonds, gold, silver)
  • Consumption assets: 
    • Assets held primarily for consumption (examples: copper, oil and pork bellies)
  • Gambling – Short Selling an example
    • Short selling involves selling securities that are not owned
      • Suppose an investor short sells 500 IBM shares, the broker will borrow the securities from another client and sells them in the market in the usual way
      • At some stage the investor will close the position by purchasing 500 IBM shares. The investor takes the profit if the stock prices have declined , else vice versa
      • Short Squeezed: If anytime the broker runs out of shares to borrow, the investor is short squeezed and forced to close his position immediately

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