1 Introduction Financial Markets(1)

1 Introduction Financial Markets(1) - Click to edit Master...

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Click to edit Master subtitle style INTRODUCTION Financial Markets Prof. Jake Feldman MBA 648 – Managerial Finance
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The Popular View of Wall 22
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33 What is Finance? Making decisions about money that ultimately increase wealth. l Two primary areas of focus, whether personal or business: Investing (the asset side of a balance sheet) Financing (the liability and equity side) The application of sources to uses of funds. l Theoretically, How should resources be allocated? How do you make decisions across time?
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Relation to other disciplines 44
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What is Corporate Finance? How is it different from Accounting? Accounting tends to focus on measurement and control reporting and monitoring . l Corporate Finance focuses on business decision-making for companies. l Every decision that a business makes has financial implications, so Corporate Finance assists with making those decisions Operational decisions Sales and Marketing Production Research Business investment that combines all these elements Financial decisions Capital structure (equity vs. debt) Debt – type, tenor and currency Dividend policy 55
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Balance Sheet Decisions 66
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Organizational Chart of a
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Balance Sheet Decisions How much debt? Leverage ROE vs. Leverage (formula) Volatility l What happens when asset value declines? l Short vs. long term debt financing of long term assets? Short term cost advantage vs. seasonality/volatility 88
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Financial System The financial system is the set of markets and institutions used for financial contracting (agreements) and the exchange of assets and risks Markets for stocks, bonds, options and other financial instruments Financial intermediaries such as banks and insurance companies The regulatory bodies that govern all of these institutions, such as the Federal Reserve, the Securities and Exchange 99
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Examples of Financial Commercial Banks l Insurance Companies l Pension and Retirement Funds l Mutual Funds l Investment Banks l Venture Capital Firms l Asset Management Firms l Information Service Providers 1010
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Commercial Banks These are financial intermediaries that offer checking accounts, savings accounts, money market accounts and time deposits. l They also facilitate payments by way of wire transfer, electronic funds transfer, internet banking, or other means. l They make loans to businesses and consumers. They also buy corporate and government bonds. 1111
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A financial institution that raises capital and advises regarding such matters, Advises and sells corporate “insurance” products like F/X contracts and credit default swaps, trades securities and manages corporate mergers and acquisitions. l
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1 Introduction Financial Markets(1) - Click to edit Master...

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