Ch1_1 - The Investment Environment Chapter 1 Investments...

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The Investment Environment Chapter 1
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Essential nature of investment Reduced current consumption Planned later consumption That is: deferred consumption Real Assets Assets used to produce goods/services Financial Assets Claims on real assets Claims on income generated from assets
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Role of Financial Assets/Markets Consumption Timing Allocation of Risk Separation of Ownership and Management Agency problem
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Mitigation of Agency problem Mechanisms to mitigate agency problem Compensation tied to performance of firm Eg stock option Board to fire the underperforming manager Outsiders such as analysts, institutional investors monitor the managers Threat of takeover Proxy contest
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Financial Crisis Bear Stearns Lehman Brothers AIG; Finnie Mae; etc Goldman Sachs; ‘compensation’ Citi – leverage ratio=30 Hedge funds – leverage ratio = 60
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This note was uploaded on 07/12/2011 for the course FINA 221 taught by Professor Na during the Spring '09 term at HKUST.

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Ch1_1 - The Investment Environment Chapter 1 Investments...

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