BUS X100 1st Edition Lecture 13Outline of Last Lecture I. The Balance Sheeta. Assetsb. Liabilitiesc. Owner’s equityII. Key Terms- Balance Sheeta. Terms and definitionsIII. Balance Sheet Limitationsa. FactsIV. The accounting EquationV. Categories of Cash Flows a. Operationsb. Investmentsc. FinancingVI. Statement of Cash Flowa. Cash inflows and outflowsVII. Cash Flow Cyclea. FlowsVIII. Notes to the Financial Statementsa. Four general types of notes to financial statementsIX. Tax Accounting - Important Considerationsa. FactsX. Financial Statements – Summarya. Key terms and definitionsOutline of Current Lecture I. Money and Characteristics and FunctionsII. Financea. DefinitionIII. The ‘Fed’ Controls the Money Supply & Economy These notes represent a detailed interpretation of the professor’s lecture. Grade Buddy is best Used as a supplement to your own notes, not as a substitute.IV. Financial Marketsa. Definitionb. Trading marketsc. InformationV. Key Concepts in Financial MarketsVI. Expected rate of ReturnVII. Financial Riska. Definitioni. Inflation Riskii. Credit Riskiii. Currency & ‘Exchange Rate’ RisksVIII. Types of Financial Marketsa. Primary marketsb. Secondary marketsIX. Key Components of Financial Marketsa. Brokersb. Dealersc. Organized exchangesX. Steps in a Typical Stock Transaction on the NYSEXI. Financial Institutions a. Definitionsb. Types of intermediariesXII. Other Key Conceptsa. Liquidityb. Diversificationc. SignalingCurrent LectureI. Money and Characteristics and Functionsa. Medium of exchangei. Anything accepted as payment for products, services, and resourcesb. Measure of valuei. A single standard or yardstick used to assign values to, and compare the values of, products, services, and resourcesc. Store of valuei. A means of retaining and accumulating wealthii. The consumer price index measures the effects of inflationII. Financea. How to manage a firms’ assets, liabilities and expenses in a way to maximize value and ensure long-term corporate healthb. Key areas in finance:i. Marketsii. Institutionsiii. ManagementIII. The ‘Fed’ Controls the Money Supply & Economy a. Main function is to regulate the nation’s money supply: but controlling bank reserves equipments, regulating the discount rate, & running open market operationsIV. Financial Marketsa. Definition- financial markets bring together buyers and sellers of the various financial instruments (products and services).b. Trading marketsi. Supply and demand for funds are tied togetherii. Makes operations regular, safe and predictablec. Informationi. Provides a wealth of informationii. For potential buyers and sellers of financial instrumentsd. Set ‘fair’ market prices V. Key Concepts in Financial Marketsa. Financial riski. Expected rate of returnii. Risk drives the rate of returns for financial instruments1. Liquidity2. Diversification3. SignalingVI. Expected rate of Returna. The anticipated or estimated rate of return (or yield) on an investmentVII. Financial Riska. Definition- the variability (and possibility of default or decline)- in a promised rate of returni. Inflation Risk1. Deprecation of the purchasing power or ‘real value’ of money at a future time2. Usually a greater risk over longer periods of timeii. Credit Risk1. Assessment of the likelihood that a borrower will default on, miss, delay, or reduce a promised paymentiii. Currency & ‘Exchange Rate’ Risks1. Change in value of one currency versus another over timeiv. Investors demand a risk premium for investing in more dangerous instrumentsVIII. Types of Financial Marketsa. Primary marketsi. Original securities for first-time issues of financial instrumentsii. IPOs (initial public officers)b. Secondary marketsi. Resale markets for securitiesii. US exchanges NYSE, AMEX, NASDAQ, Regionaliii. Global exchanges: FTSE, Nikkei, CACiv. Commodities: CBT, CME, CMX…v. Futures, options, etc…IX. Key Components of Financial Marketsa. Brokersi. Who buy and sell for clientsb. Dealersi. Facilitate market activity by buying and selling securitiesc. Organized exchangesi. Markets governed by rules and guidelinesii. Regulates dealers and brokers iii. Protects clientsX. Steps in a Typical Stock Transaction on the NYSEa. Account executive receives your order to sell stock and relays order electronicallyto brokerage firm’s representative of floor of NYSEb. Firms clerk signals transaction from booth to broker on stock exchange floorc. Broker gives to trading post where stick is traded with a stock exchange member who has an order to buyd. After the trade is executed, a notice is sent to the brokerage firm and the consolidated ticker tapee. Sale accounts on the ticker tape, and confirmation is relayed to account actives who notifies you of completed transactionXI. Financial Institutions a. Act as financial ‘intermediaries’i. That facilitate investments, raise funds, assess risk and support transfer ofpaymentsb. Types of intermediariesi. Depository institutionsii. Contractual savings institutionsiii. Investment institutions iv. Market financed institutionsXII. Other Key Conceptsa. Liquidityi. Ability to convert quickly an assets to cash at its fair market value price at a low cost for the transactionb. Diversificationi. Distribution of financial resources into multiple investments, multiple projects or to find a project through multiple investorsii. Intent is usually to reduce ‘specific’ risksc. Signalingi. Communication of an overall assessment of short-term and longer-term prospects of a firmii. This signaling often is reflected in changes in the price investors are willing to pay for an