What is finance

• Other terms for surplus unit are saver, lender, buyer of financial assets, financial investor, supplier of loanable funds, buyer of securities.. • The surplus unit may buy financial a

Trang 1

FINANCIAL MANAGEMENT

Part 1: An introduction to finance

Lecture 1: What is finance?

Trang 2

1.1 Introduction

1.2 Defining finance

1.3 The Firm: a sistemic approach

1.4 Corporate Finance: the financial function 1.5 The financial objective: value creation

1.6 Financial main principles

1.7 Finance: historic evolution

1.8 Main programmes in Finance

Trang 3

1.1 Introduction (1)

mutual fund, direct stock market investment ?

Should my organization provide the funds?

Trang 4

1.1 Introduction (2)

Why study finance?

To manage your personal resources

To deal with the world of business

To pursue interesting and rewarding career opportunities

To make informed public choices as a citizen For the intellectual challenge

Trang 5

• Household

• Business Firms

• Government

• Foreign Sector

Introduction: Macroeconomic/Spending Sectors

SURPLUS SPENDING

UNITSDEFICIT SPENDING

UNITS

Trang 6

• Has more cash income flow than expenditure

on consumption and real investments in a

period of time The surplus is then allocated

to the financial sector.

• Other terms for surplus unit are saver, lender, buyer of financial assets, financial investor,

supplier of loanable funds, buyer of securities

1.1 Introduction: Surplus Spending Unit (1)

Trang 7

• The surplus unit may buy financial assets, hold more money, or pay off financial

liabilities issued earlier when in a deficit situation

• The household and foreign sectors are

usually a surplus sector

1.1 Introduction: Surplus Spending Unit (2)

Trang 8

• Has more expenditures on consumption and real goods (investment) in the real sector

than income during a period of time

• The deficit unit must participate (borrow) in the financial sector to balance cash inflows with outflows

1.1 Introduction: Deficit Spending Unit (1)

Trang 9

• Other terms for deficit expending unit are borrower, demander of loanable funds, and seller of securities.

• The deficit spending unit may issue

financial liabilities, reduce money balances, and sell financial assets acquired previously when in a surplus situation

1.1 Introduction: Deficit Spending Unit (2)

Trang 10

• Contracts related to the transfer of funds from

surplus to deficit budget units

• Financial claims are also called financial assets and liabilities, securities, loans, and financial

investments.

• For every financial asset, there is an offsetting

financial liability.

• Total receivable equal total payable in the financial system

• Loans outstanding match borrowers’ liabilities

1.1 Introduction: Financial Claims (1)

Trang 11

• Financial markets offer opportunity for:

– Financing for DSUs (primary)

– Financial investing for SSUs (primary and

secondary) – Providing liquidity via trading financial claims

in secondary markets

1.1 Introduction: Financial Claims (2)

Trang 12

THE FLOW OF FUNDS DIAGRAM

Deficit Spending Unit (DSU)

Surplus

Spending

Unit (SSU)

Funds Funds

Financial Assets = Financial Claims

Trang 13

Surplus

Spending

Unit (SSU)

Funds Funds

Financial Assets = Financial Claims

Borrower demander of loanable funds

seller of securities

Saver, lender buyer of financial assets

financial investor

supplier of loanable funds

buyer of securities

Trang 14

• Assets: any possession that has value in an exchange

– tangible: value depends on particular physical properties (reproducible and non-reproducible)

– intangible: legal claims to some future benefit.

Financial assets

1.1 Introduction: Real & Financial assets

Trang 15

• Main properties of financial assets

– Rate of return (R): expected return

– Risk (r): credit risk, market risk

– Liquidity (L): how much sellers stand to lose if they wish to sell immediately against engaging in

a costly and time-consuming search (J.Tobin)

1.1 Introduction: Financial assets: main properties

Trang 16

Intermediaries

Funds Funds

Trang 17

DIRECT

Surplus Spending

Unit (SSU)

INDIRECT

Brokers Dealers

Intermediaries

Funds Funds

Trang 18

1.2 Defining Finance

• What is Finance?

• Types of Finance definitions

– Lack of any specific definition

– Raising and spending funds

– Economic decisions with a time component – Micro/Macro: need for integration

Trang 19

• Finance is analytical.

• Finance is based on economic principles

• Finance uses accounting information as an

input for decision-making

• Finance is international in perspective

• Finance is constantly changing

• Finance is the study of how to invest and

raise money productively

http://garnet.acns.fsu.edu/~ppeters/fin3403/

Trang 20

• Finance is the study of how people allocate

scarce resources over time

– costs and benefits are distributed over time

– but the actual timing and size of future cash

flows are often known only probabilistically

• Understanding finance helps you evaluate these uncertain cash flows

Bodie and Merton

Trang 21

• When implementing decisions, people make

use of the Financial System which can be

defined as the set of markets and other

institutions used for financial contracting

and exchange of assets and risks

Bodie and Merton

Trang 22

• Financial theory consists of:

– the set of concepts that help to organize one’s thinking about how to allocate resources over time

– the set of quantitative models used to help

evaluate alternatives, make decisions, and

Trang 23

• A basic tenet of finance is that the existence

of economic organizations (e.g firms and governments) facilitate the satisfaction of

people’s consumption preferences

Bodie and Merton

Trang 24

• Finance Theory is the study of the behaviour of

individuals in the intertemporal allocation (over time) of their resources in an uncertain

environment, and the study of the function of

economic institutions and markets in making these allocations possible

1.2 Defining Finance: Definition 1

Economía Financiera Marín, José M / Rubio, Gonzalo Antoni Bosch, Editor, Barcelona, 2001

Trang 25

The practice of “finance” exists for the

creation of value

Financial contracting brings about the

substitution of real wealth (i.e real

business assets) for financial wealth (i.e

securities) Investing in financial securities has better

attributes that in real assets Value is created in tthe real assets

held by businesses, and then transmitted into the value of

1.2 Defining Finance: a new paradigm The

Value Creation Function of Finance

Norton y Scott, “A new Paradigm: the value creation

function of finance”, january 2001

Trang 26

Finance is the process of transforming

existing assets into new, contractual forms,

as well as the analytical techniques needed

to support this process, for the purpose of

wealth creation in modern, capitalistic

economies

1.2 Defining Finance: a new paradigm.

Definition 2

Norton y Scott, “A new Paradigm: the value creation

function of finance”, january 2001

Trang 27

• Financial management (Corporate finance) deals with how firms raise and use funds to make short-term and long-term investments.

• Investment deals with how the securities markets

work and how to evaluate and manage investments in stocks and bonds

• Financial Markets and Institutions includes the study

of the banking system and markets.

1.2 Defining Finance: the three primary areas of finance

Peterson and Fabozzi

Trang 28

FINANCIAL MANAGEMENT Part 1: An introduction to finance

(II)

Trang 29

Lecture 1: What is finance? (II)

1.1 Introduction

1.2 Defining finance

1.4 Corporate Finance: the financial function 1.5 The financial objective: value creation

1.8 Main programmes in Finance

Trang 30

Subsistema de recursos humanos

Subsistema de dirección y gestión

Subsistema comercial

Subsistema de operaciones

rso na l

Bienes y servicios

Personal Personal

Goods and Services

Resourses Expenses Sales

Incomes

Subsistema de recursos humanos

Human Resources Subsystem

Subsistema de dirección y gestión

Management Subsystem

Subsistema de dirección y gestión Finance Subsystem

Commercial Subsystem

Operations Subsystem

H um an re so ur ce

Goods and Services

Personnel Human Resources

Resourses

Trang 31

FINANCIAL SUBSYTEM

Planificación Financiera

FINANCIACIÓN

Financiación Externa

Autofinanciación

Beneficio

INVERSIÓN

Financiación en activo fijo

Inversión en activo circulante

Costes

Subsistema

de recursos humanos

Subsistema

de operaciones

Subsistema

de dirección

y gestión

Demanda de créditos

Valores

Mercados Financieros

Dividendos Impuestos

Reservas

FINANCIACIÓN

Autofinanciación

Beneficio

INVERSIÓN

Costes

Subsistema

de recursos humanos

Subsistema

de operaciones

Subsistema

de dirección

y gestión

Valores

Financial Planning

FINANCIACIÓN

Autofinanciación

FINANCING

External Financing

Retained earnings

Beneficio Benefit

INVERSIÓN

Costes

INVERSIÓN

INVESTMENT

Fixed Asset

Current Assets

Costs

Subsistema

de recursos humanos

Human Recourses Subsystem

Subsistema

de operaciones

Operations Subsystem

Commercial Subsystem

Subsistema

de dirección

y gestión

Management Subsytem

Valores

Dividends Taxes

Trang 32

1.5 Corporate Finance: the financial function

• Corporations face two broad financial questions:

- What investments should the firm make?

- How should it pay for those investments?

Financial managers are concerned with :

• Investment Decisions (use of funds):

– The buying, holding or selling of types of assets

• Financing Decisions (acquisitions of funds)

Trang 33

1.6 Corporate Finance: the financial function

FINANCIAL MANAGEMENT (CORPORATE FINANCE)

r ( r > k ) k

FINANCIAL SYSTEM REAL SYSTEM

INVESTMENT FINANCING

INVESTMENT / FINANCIAL SUBSYTEM

RETURN REPAYMENT AND RETURN

FINANCIAL MARKETS

FIRM

OPERATIONS

( Real goods & services

Trang 34

1.7 The Financial objective: value creation

• Goal of management: maximize the economic well-being, or wealth, of the owners (current shareholders)

=> maximize the price of the stock

• Share price today = Present value of all future expected

dividends at required return

Pr

.

i

i k

d ice

Share Max

Trang 35

1.8 The Financial objective: value creation

• Financial managers must create or generate value for their

shareholders.

• Economic Value Added (EVA) is a measure of a company's

financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis)

• The formula for calculating EVA is as follows:

EVA = Net Operating Profit After Taxes - (Capital * Cost of

Capital)

Trang 36

• Rational Financial behavior

• Risk aversion

• Budgetary diversification

• Existence of two parts in all financial transaction

• Measurement by cash flows

• Signaling and informative asymmetry

• Efficiency of financial markets

• Direct relation of risk and return

• Existence of valuable ideas

• Financial conduct initiative

• The Time Value of the money and value additivity.

Trang 37

Principles of century XX:

Beginning of the research in finance

EVENTS

Finance at the present

- Expansion of the Years 20

Trang 38

Portfolio selection Theory (Markowitz, 1952,1959)

CAPM (widening and reformulation)

Dividends Policy (Modigliani, Miller, 1963)

Capital Assets Pricing Model (CAPM) (Sharpe, 1963-4, Lintner, 1965)

Efficient Market Theory (Fama, 1970)

Financial Structure (Modigliani, Miller, 1958)

Age ncy

The ory Info rma

tion The ory

Financial Innovation

Methods based on Fuzzy Sets Theory (Kaufmann y Gil, 1986-87)

Chaos Theory, Non Linear Dynamics Markets Efficiency

2000-Lecture 1: What is finance? (II)

Trang 39

1.11 Main programmes in finance

• Managements of Investments- Capital Budgeting.

• Capital Structure and Dividend Policy.

Trang 40

• Kidwell, Peterson, Blackwell, Whidbee: Financial

Institutions, Markets, and Money, Eighth Edition, John Wiley

& Sons, 2003

• Fabozzi, Modigliani: Capital Markets Institutions and

Instruments Prentice Hall, 2003

• Bodie, Zvi and Merton, Robert C.: Finance Prentice Hall,

1999

• Pamela P Peterson and Frank Fabozzi: Financial Management

and Analysis, 2nd Edition, John Wiley & Sons, 2003

Bibliography

Định dạng
Số trang	40
Dung lượng	909,5 KB