Financial Environment: FN6411

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• Financial Environment FN6411
• Summer 2004
• Sris Chatterjee

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From WSJ, 30 April 2004
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Functions of Financial System

• Transferring Resources across Time and Space
• Managing Risk and Risk Sharing
• Clearing and Settling Payments
• Securitization
• Information Processing
• Financial Engineering and Innovations

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Forms of Business Organizations

• Sole Proprietorship
• Partnership
• Corporations
• Joint Venture

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Corporations

• Identified as
• Inc (in USA), PLC (in UK), SA (in France), SpA
  (in Italy), NV (in the Netherlands), AB (in
  Sweden), AG (in Germany)
• Separation of Ownership and Management
• Governance Structures and Challenges
• Board of Directors Duties and Obligations
• Shareholder Rights

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Goals of the Firm

• Growth in Sales, EPS, Market Share, etc.
• Meeting Stakeholder Demands
• Maximizing Profits
• Maximizing Shareholder Wealth
• Based on Corporate Law
• Consistent with Market Discipline
• Unifies Diverse Objectives

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Types of Markets

• Primary Market vs. Secondary Market
• Money Market vs. Capital Market
• Auction Market vs. Dealer Market
• Spot vs. Forward Market
• Forwards and Futures
• Options

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Types of Investment

• Common Stock
• ADRs
• Preferred Stock
• Fixed Income/Bonds
• Federal, State and Munis
• Corporate
• Country
• Mutual Funds
• Open End
• Closed End
• Options and Futures

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Major Stock Indexes

• USA DJI, SP500
• Japan Nikkei 225
• UK FT30, FT100
• Germany DAX
• France CAC 40
• Global MSCI Equity

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Rates of Return

• Single Period
• Multi Period
• Arithmetic
• Geometric or Time Weighted Rate of Return
• Money Weighted Rate of Return

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Stock Price Dynamics

• Technical Analysis and Charting
• Fundamental Analysis
• Efficient Market Hypothesis
• Random Walk Model

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Major Gate-Keepers

• SEC
• Justice Department and FTC
• FASB
• Rating Agencies
• Delaware Courts
• Exchanges

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The Dark Side of Markets

• Crash of 1987
• SL Crisis
• Asian Crisis
• LTCM
• Dot-Com Bubble
• Enron, Tyco, Global Crossing, Parmalat