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Notes - Finance 3101 Notes US Current Events Stock Declines...

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Finance 3101 Notes US Current Events Stock Declines “Great Recession” Deficit - How much Gov. spends, rather than how much it collects. ($1.5 Trillion) Debt - Total Amount owed. ($14.3 Trillion) Thursday, September 01, 2011 The Cycle of Money Banks: Where do they get their money? a) Suppliers of Funds a.i) Depositors a.ii) Federal Reserve: regulate interest rates and monitor employment a.iii) Investors Banks: What do they do? a.i) Demand funds (a.i.1.a) Borrowers (a.i.1.b) Depositors Banks: What do others get from them? a.i) Borrowers and Depositor (a.i.1.a) Money and Interest a.ii) Suppliers of Funds (a.ii.1.a) Interest and Dividends Firms: Get money from investors Equity - stock Debt – loans* Bonds* * Interest Firms: Make money with assets Gain profit Example: Sarah gives $500 to the bank with 5% interest. How much is she going to get in 1 year? $500 + $25 = $525 Sam is loaned $500 to the bank with 8% interest. How much will he owe in 1 year? $500 + $40 = $540 Therefore, the bank makes $15 profit. Risk of Default: Only one option May not get attractive interest rate May not know each other Credit check Contract Areas of Finance Financial Markets and Institutions (Stock, Bonds, Futures, etc)
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Corporate Investments International Financial Markets Asset Equity- where you buy stocks Debt- where get bonds Derivative Markets Foreign Exchange Maturity < 1 year: Money Market > 1 year: Capital Market Issued Primary Market- IPO Secondary Market- Already issued traded between investors (This is bigger.) Dealer vs. Auction NASDAC US Treasuries Corporate Finance Markets ON TEST 1. Equity Stock------------------------------| Capital Structure Debt- Bonds and Loan------| 2. Investments Build Plants------------| Capital Budgeting Hire Employees-------| Enter New Markets--| 3. Working Capital Management Current Assets and Current Liabilities #1 Goal of Financial Manager Maximize wealth of shareholders long-term view Maximize firm profits Why not?: Cut R&D, hurt brand by lower standards, cut employees or not hire, de-invest in marketing, corporate donations View: “The Crisis of Credit Visualized” on Youtube Crisis of Credit Interest rates decrease 1% Subprime mortgage Money loaned to people who couldn’t pay People over borrowing Insured CDO Tuesday, September 06, 2011 Ch. 2 Financial Statements Current Assets: Something that will be turned into cash in a year or less Total Owner’s Equity: Owned by the shareholders
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