MGM 06 - 2 OCT - Roadmap for Finance Sessions Today...

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Finance I Thursday, October 2, 2008 MGM 101 - Introduction to Management Functions Roadmap for Finance Sessions Today: Fundamentals of Investing Tuesday: Briefing on Key Issues in Finance Next Thursday: Conversation with a Special Guest from the Investment Industry Key questions for today: How have the financial instruments available to investors changed in recent years? What is yield? Why do investments “make money”? Why is understanding risk vital to investment decision-making? What factors impact investment values? Housekeeping: Tests back on Tuesday Today A challenging set of concepts… “The combination of a severe and worsening liquidity and credit crunch; oil prices close to $100; a worsening housing recession and its wealth effects on consumption; a weakening labour market; and a consumer that is buffeted by severe negative shocks means that a US recession is by now inevitable and that the rest of the world will not decouple from the US hard landing.” » Prof Nouriel Roubini, NYU/ Stern School of Business Nov 26, 2007 “Stocks fell on Monday, ending a tumultuous year… it was also a year of stark contrasts. While the broad market struggled under the weight of the credit crisis, which hurt financial firms, home builders and retailers, sectors like technology, energy and materials posted remarkable gains.” » New York Times, Jan 1, 2008 Goal of these sessions is to begin to understand and apply the terminology & concepts of finance from the perspective of the investor & corporate financial managers The world of the investor In the past (say, a generation ago) a relatively simple set of investment instruments: Stocks (or shares): publicly-traded equity investments in a corporation Bonds: corporate debt, paid set rate of interest & could be traded at a premium or discount as interest rates changed Preferred shares: combines of characteristics of stocks & bonds Today, available investment vehicles are massively expanded : Stocks: many more public companies than before; equity investment opportunities are global Debt: more debt borrowers world-wide, considerable quality range Plus… hedge funds, debentures, leveraged buyout & private equity funds, derivatives, options, puts & calls, securitized mortgages, CDOs, CLOs, SIVs… and the possibilities continue to grow… What is investment “yield”?
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