03-Financial-environment

03-Financial-environment - Financial Environment: Markets,...

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Financial Environment  1 Financial markets Capital formation -- institutions Determinants of interest rates Yield curves Taxable vs. tax-exempt bonds Financial Environment: Markets, Institutions, Interest Rates, and Taxes
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Financial Environment  2 Define the following terms: Financial vs. physical asset markets Money vs. capital markets Primary vs. secondary markets Spot vs. futures markets Direct claim vs. derivative securities
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Financial Environment  3 Three Primary Ways Capital Is Transferred Between Savers and Borrowers Direct transfer Investment banking house Financial intermediary
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Financial Environment  4 Organized Exchanges vs. Over-the-Counter Market Auction market vs. dealer market (exchanges vs. OTC) NYSE vs. NASDAQ system Differences are narrowing Technology advancements
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Financial Environment  5 What do we call the price, or cost, of debt capital? The interest rate What do we call the price, or cost, of equity capital? Required Dividend Capital return yield gain = + .
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Financial Environment  6 What four factors affect the cost of money? Production opportunities Time preferences for consumption Risk of loss Expected inflation Tax rates
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7 “Real” Versus “Nominal” Rates R* = Real risk-free rate. T-bill rate, if no inflation:
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03-Financial-environment - Financial Environment: Markets,...

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