FMRI Coursework Example | Topics and Well Written Essays - 1000 words

FMRI - Coursework Example (BME, 2007). The third category of products offered by financial institutions is investment funds. These accumulate assets from investors and invest the assets in a diversified pool of assets. According to BME consulting report of 2007, investment funds can be classified as equity fund, bond funds, balanced funds, money market funds, real estate funds and other funds such as hedge funds. (BME, 2007). The other product is the life insurance. This product is among the largest net asset pools of consumers in the European market. UK is the largest market in Europe in relation to total life insurance provisions. (BME, 2007). Derivatives are the other category of investments issued by financial institutions. â€Å"Derivatives are special non-standardized instruments tailored to meet the different investment strategies and needs of consumers.† (BME, 2007) There are mainly two types of derivatives. They are warrants and certificates. Lastly, there is a private equity. Consumers consider this class of assets better than public equity since the liquidity and transparency level is lower, and is a more established class of assets. (BME, 2007). From a report by the Bank of England, with an increase in interest rate, consumers will shift their investments to suit their risk attitudes. If the rise in interest rate reduces their level of earnings, investors will opt to sell their assets and invest in a different category that will maximize their earnings. For example, a rise in interest rate of bonds will lead to a fall in its price. With this, investors will tend to sell their bonds before maturity and reinvest in securities with a lower prevailing interest rate. On the same report, savings have a direct relationship with changes in interest, whereas investments have an indirect or negative relationship. The increase in interest will make savings more attractive and reduce greatly on borrowings. This is because the rate of borrowing will increase and the income from