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Trading and Investment Terms

Investment Securities

Investment securities can be defined as securities (tradable financial assets, for example, stocks or fixed income instruments) that are bought so as to be owned for investment.

 

This is as opposed to securities, which are bought by a broker or dealer or other representative, for fast resale (in the essence trading account securities).

 

Investment Securities are subject to governance via Article 8 of the Uniform Commercial Code (UCC).

 

Investment securities can be found on the accounting report assets of numerous banks, carried at amortized book value (characterized as the initial cost less amortization until the current date).

 

Banks regularly buy attractive securities to hold in their portfolios; these are typically one of two primary wellsprings of income, alongside loans.

 

The fundamental contrast among loans and investment securities is that loans are typically procured through a procedure of direct negotiation between the borrower and bank while the obtaining of investment securities is generally via a third party broker or dealer.

 

Investment securities at banks are subject to capital limitations.

 

For instance, the number of Type II securities or securities issued by a state government is confined to 10 % of the bank's total capital and surplus.

 

Investment securities furnish banks with the benefit of liquidity in addition to the benefits from realized capital gains when these are sold.

 

If the securities are investment grade, they are generally able to help banks meet their pledge necessities for government deposits. In this instance, they can be seen as collateral.

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