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Line quote from book:
Legal restrictions on investments
The type of investments an organisation can make is restricted by law in certain special cases:
(a) Where public (ie taxpayers’) money is invested by a public sector (central or local government) institution
(b) Where the money is invested by a company on behalf of personal investors in cases such as pension schemes
(c)In the case of trustsExplain these lines tutor, I do not understand what he meants to say. A brief explanation would be welcomed.
There is risk with many investments. To reduce risk, you usually need to tolerate a low return. Eg putting eg €70,000 money into a bank deposit account will earn a pathetic rate of interest but even if the bank fails you will not lose your capital because the government gives a guarantee (up to about €90,000 or so).
Higher returns are available if you invest shares but there is a risk that the company will fail of its share price might collapse.
Certain legislation therefore imposes rules on how funds can be invested so as to better safeguard the funds. Looking at the three cases above
(a) eg local councils must invest in relatively safe investments to safeguard funds raised from the public.
(b) eg pensioners’ funds must be safeguarded.
(c) eg trusts where a trustee looks after funds for a beneficiary. They are not allowed to gamble excessively with other people’s money so there are complicated rules about how the money can be invested.
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