CC BY
70THE ROLE OF INVESTMENTS IN THE DEVELOPMENT
OF ECONOMY Ahmedov M.N.1, Alijonov T.M.2
1Ahmedov Muhsinjon Numonjon o 'g 'li - Student;
2.Alijonov Tulkin Murodjon o 'g 'li - Student, MANAGEMENT IN PRODUCTION FACULTY, FERGHANA POLYTECHNIC INSTITUTE, FERGHANA, REPUBLIC OF UZBEKISTAN
Abstract: the article under discussion depicts the role of investments in the development of the economy of a country. The authors discuss the advantage of investing in risky assets and consideration of inflation rate with its affects and role in the economic growth. Keywords: investments, developing, economic growth, indicator, monetary, inflation, risky assets, long-term, real estate.
One of the way in which we connect the future is through investments. Investment is the planning what secures most of the people from the uncertainty of future. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price. Investment plays a crucial role which differentiates the developed, developing and underdeveloped countries. Investments will definitely act as an indicator to project the GDP, inflation, WPI and the national economy [1, p.p. 19-27].
The problem what we are facing in term of proper investment cannot be solved overnight, it requires a long term planning and practice. This rectification will definitely yield to the individuals growth and the economic growth in the long term. Some of the factors which can be considered before investing are:
1. Investment in risky assets
People across the country should cultivate the habit of investing in risk assets. What is a risky asset? Any investment in assets which doesn't give a fixed rate of interest is said to be a risky asset such as equities, real estate, high yield and emerging market bonds, etc. Rising rates in such assets suggest faster GDP growth, better ROIs and a greater demand for investment capital. These positive factors, in turn, also drive better corporate earnings growth and improve household, corporate and export-oriented EM balance sheets.
Before investment the investor can analyze the background of the investment by considering various factors of it. For example, in the case of shares, the safety may be partially gauged from quantitative data such as the past trend in the price of the stock, the financial performance of the company; it also may be supplemented with qualitative factors such as the reputation of the company [ 2, p.p. 24-29].
The possibility of reducing risk is also possible now by hedging the risk using derivative products. Advantages of using derivatives:
• This allows the sharing or redistribution of risk.
• Derivatives can allow businesses to manage effectively exposures to external influences on their business over which they have no control.
• This allows parties to speculate on the values of underlying assets, without necessarily having any actual interest in the asset itself.
2. Consideration of inflation.
Inflation plays a crucial role in the economic development, its presence is considered in the countries financial forecasting. Earlier wholesale price index was considered for inflation calculation but now we also consider consumer price index.
3. Investing for a long-term period
Analysts say investments made with a long-term perspective would fetch better returns. As diversification is important for long-term wealth creation, investors must understand their risk profile, create a portfolio framework, and monitor it regularly.
The advantage of long-term investing is found in the relationship between volatility and time. Investments held for longer periods tend to exhibit lower volatility than those held for shorter periods. The longer you invest, the more
likely you will be able to weather low market periods. Assets with higher short-term volatility risk (such as stocks) tend to have higher returns over the long term than less volatile assets such as money markets. Advantages of long-term investment:
• Risk premium capture (risk transfer)
• Market aversion to short duration risks can generate a range of premiums that might be captured by long-term investors.
Three key advantages held by long-term investors are:
a) Capacity to adopt and hold positions where payoff timing is uncertain;
b) Ability to exploit opportunities generated by short-term investors; and,
c) Latitude to invest in unlisted and /or illiquid assets [2, p.p. 24-29].
To attain a strong economy the people of the country should work towards it and the primary activity what they should concentrate is investment within the country. Making a proper analysis before investing is also necessary for the achievement of the same. This article has made an attempt to understand clearly of what investment is and its importance in the economic growth and also it has tried to give some clear picture of different factors to be considered before investing.
References
1. Khan M.S., Reinhart C.M. Private investment and economic growth in developing countries. World Development 18, 1990. P.p. 19-27.
2. Sandler T., Hartley K. The economics of defense. Cambridge University Press., 1995. P.p. 24-29.
