Topic 1. Introduction

Содержание

Слайд 2

1-1 KEY CONCEPTS OF FINANCE Elena Rogova, Professor, erogova@hse.ru 13.09.2021 KEY CONCEPTS OF FINANCE

1-1
KEY CONCEPTS OF FINANCE

Elena Rogova, Professor, erogova@hse.ru

13.09.2021

KEY CONCEPTS OF FINANCE

Слайд 3

WHAT IS FINANCE? Finance is the study of how and under

WHAT IS FINANCE?

Finance is the study of how and under what

terms savings (money) are allocated between lenders and borrowers.
– Finance is distinct from economics in that it addresses not only how resources are allocated but also under what terms and through what channels
Financial contracts or securities occur whenever funds are transferred from issuer to buyer.

13.09.2021

KEY CONCEPTS OF FINANCE

Слайд 4

REAL VERSUS FINANCIAL ASSETS 13.09.2021 Real assets are tangible things owned

REAL VERSUS FINANCIAL ASSETS

13.09.2021

Real assets are tangible things owned by persons

and businesses
Residential structures and property
Major appliances and automobiles
Office towers, factories, mines
Machinery and equipment
Financial assets are what one individual has lent to another
Consumer credit loans
Mortgages

KEY CONCEPTS OF FINANCE

Слайд 5

FINANCE EXAMPLES 13.09.2021 Investing personal money in stocks, bonds, or guaranteed

FINANCE EXAMPLES

13.09.2021

Investing personal money in stocks, bonds, or guaranteed investment certificates

(GICs)
Borrowing money from institutional investors by issuing bonds on behalf of a public company
Lending money to people by providing them a mortgage to buy a house with
Using Excel spreadsheets to build a budget and financial model for a corporation
Saving personal money in a high-interest savings account
Developing a forecast for government spending and revenue collection

KEY CONCEPTS OF FINANCE

Слайд 6

FINANCE: EXAMPLES (1) 13.09.2021 KEY CONCEPTS OF FINANCE If you receive

FINANCE: EXAMPLES (1)

13.09.2021

KEY CONCEPTS OF FINANCE

If you receive $1 million

today, then what decision would you make regarding consumption and investment? Suppose you spend (consume)
$100,000 now. This leaves you with $900,000. You can postpone consumption to future time periods by investing the $900,000 today.
On the other hand, what if you have $20,000 but need to consume $30,000. You can borrow the
$10,000 and pay it back in a future period along with the interest.
Слайд 7

FINANCE: EXAMPLES (1) 13.09.2021 If you receive $1 million today, then

FINANCE: EXAMPLES (1)

13.09.2021

If you receive $1 million today, then what decision

would you make regarding consumption and investment?
Suppose you spend (consume) $100,000 now. This leaves you with $900,000. You can postpone consumption to future time periods by investing the $900,000 today.
On the other hand, what if you have $20,000 but need to consume $30,000. You can borrow the $10,000 and pay it back in a future period along with the interest.

KEY CONCEPTS OF FINANCE

Слайд 8

FINANCE: EXAMPLES (2) 13.09.2021 A firm must spend $100 million for

FINANCE: EXAMPLES (2)

13.09.2021

A firm must spend $100 million for the required

assets if a proposed project is approved. Important issues are:
Should the project be accepted or rejected?
What do investors demand as a (minimum acceptable) project rate of return?
What are the project’s forecasted future cash flows?
How risky are these forecasted cash flows?
Where will the $100 million come from, i.e., what mix of equity and debt financing should be used?
If a firm has $200 million of cash flow, but needs reinvest $100 million, what should be done with the remaining $100 million of cash?
Pay it out as a dividend or repurchase some stock?

KEY CONCEPTS OF FINANCE

Слайд 9

FINANCE: EXAMPLES (3) 13.09.2021 A mutual fund manager that manages a

FINANCE: EXAMPLES (3)

13.09.2021

A mutual fund manager that manages a fund with

$10 billion portfolio receives an additional $100 million in cash from new investors.
Which stocks or bonds to purchase?
How will any proposed new investments affect the expected return and risk of the overall portfolio?

KEY CONCEPTS OF FINANCE

Слайд 10

GENERAL AREAS OF FINANCE 13.09.2021 Financial Markets and Institutions: banks, insurance

GENERAL AREAS OF FINANCE

13.09.2021

Financial Markets and Institutions: banks, insurance companies, savings

and loans, and credits unions
Investments: determining the values, risks, and returns of financial assets (stocks, bonds) and the optimal mix of securities to be held in a portfolio of investments
Financial Services: how to invest money (home purchase, financial stability, budgeting)
Managerial (Business) Finance: firms’ decisions about their cash flows (plant expansion, credit terms,
inventory, cash on hand, earnings, dividends,…)

KEY CONCEPTS OF FINANCE

Слайд 11

FINANCE DISCIPLINES 13.09.2021 KEY CONCEPTS OF FINANCE Public finance is about

FINANCE DISCIPLINES

13.09.2021

KEY CONCEPTS OF FINANCE

Public finance is about the taxing and

spending activities of the government. Focus is on microeconomic functions of government – policies that affect overall unemployment or price levels are left for macroeconomics. Scope of public finance is unclear – government has role in many activities, but focus will be on taxes and spending.
Corporate finance is every decision that a business makes has financial implications, and any decision which affects the finances of a business.
Personal Finance is managing your personal budget, money and investment.
Слайд 12

FINANCE THEORY 13.09.2021 KEY CONCEPTS OF FINANCE Finance Theory is the

FINANCE THEORY

13.09.2021

KEY CONCEPTS OF FINANCE

Finance Theory is the study of the

behavior of individuals in the inter-temporal 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.
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 implement them. These concepts and models apply at all levels and scales of decision making.
Слайд 13

BASIC TENET OF FINANCE 13.09.2021 The existence of economic organizations (e.g.

BASIC TENET OF FINANCE

13.09.2021

The existence of economic organizations (e.g. firms and

governments) facilitates the satisfaction of people’s consumption preferences.
Two features: The costs and benefits of financial decisions are
Spread out over time
Usually not known with certainty in advance by either the decision makers or anybody else.

KEY CONCEPTS OF FINANCE

Слайд 14

THE VALUE CREATION FUNCTION OF FINANCE 13.09.2021 KEY CONCEPTS OF FINANCE

THE VALUE CREATION FUNCTION OF FINANCE

13.09.2021

KEY CONCEPTS OF FINANCE

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 than in real assets.
Value is created in the real assets held by businesses, and then transmitted into the value of financial wealth issued by businesses and held by investors.
Слайд 15

BASIC CONCEPTS OF FINANCE 13.09.2021 KEY CONCEPTS OF FINANCE Risk and

BASIC CONCEPTS OF FINANCE

13.09.2021

KEY CONCEPTS OF FINANCE

Risk and Return
Time value

of Money
Cash is King
Financial Markets Efficiency
Слайд 16

BASIC CONCEPTS OF FINANCE: RISK AND RETURN 13.09.2021 The higher is

BASIC CONCEPTS OF FINANCE: RISK AND RETURN

13.09.2021

The higher is the risk

of investments, the higher is the return that investors require
Practical implications
Financial assets valuation,
Capital investments projects decision-making, Companies valuation,
Credit ratings assignment etc.

KEY CONCEPTS OF FINANCE

Слайд 17

THREE TYPES OF RISK 13.09.2021 KEY CONCEPTS OF FINANCE Autonomous risk

THREE TYPES OF RISK

13.09.2021

KEY CONCEPTS OF FINANCE

Autonomous risk related to a

specific project or business unit

Corporate risk
related to a whole company

C

B

A

N
Market risk
Related to a market portfolio
of securities (stocks and bonds)

X

Y

Слайд 18

INVESTORS’ RATIONALITY (1) 13.09.2021 Risk tolerance – the feature relevant for

INVESTORS’ RATIONALITY (1)

13.09.2021

Risk tolerance – the feature relevant for the decision

making about the purchase of securities, taking investment projects etc.

Investors’ rationality is limited
Asymmetric attitude to profits and losses
Emotional colouring of risks
Non-cash values

KEY CONCEPTS OF FINANCE

Слайд 19

TEST 1 13.09.2021 You can choose between two games You throw

TEST 1

13.09.2021

You can choose between two games
You throw a dice and

got $60 if 6 appears
OR
You throw a dice and got $10 regardless which number appears
Which game would you choose?

KEY CONCEPTS OF FINANCE

Слайд 20

TEST 1 13.09.2021 You can choose between two games You throw

TEST 1

13.09.2021

You can choose between two games
You throw a dice and

got $60 if 6 appears
OR
You throw a dice and got $10 regardless which number appears
Which game would you choose?
Test 1 (modified)
You throw a dice and got $60,000 if 6 appears
OR
You throw a dice and got $10,000 regardless which number appears
Which game would you choose now?

KEY CONCEPTS OF FINANCE

Слайд 21

RISK TOLERANCE 13.09.2021 If you prefer the first game, you are

RISK TOLERANCE

13.09.2021

If you prefer the first game, you are a RISK-

TAKER
It you choose the second one, you are a RISK- AVERTER
– Risk aversion is a typical feature of rational investors
If you are indifferent to your choice, you are
RISK-NEUTRAL

KEY CONCEPTS OF FINANCE

Слайд 22

BASIC CONCEPTS OF FINANCE: TIME VALUE OF MONEY 13.09.2021 KEY CONCEPTS

BASIC CONCEPTS OF FINANCE: TIME VALUE OF MONEY

13.09.2021

KEY CONCEPTS OF FINANCE

One

ruble in your pocket today has more value than the right to get this one ruble in a couple of days
Practical implications of the concept
Interest rates term structure,
Financial assets valuation,
Business valuation etc.
Слайд 23

13.09.2021

13.09.2021

Слайд 24

KEY CONCEPTS OF FINANCE 13.09.2021

KEY CONCEPTS OF FINANCE

13.09.2021

Слайд 25

TEST 2 13.09.2021 KEY CONCEPTS OF FINANCE You have won in

TEST 2

13.09.2021

KEY CONCEPTS OF FINANCE

You have won in a competition and

now can choose a prize:
5,000 rubles now
OR
10,000 rubles in a year
Which prize would you choose?
Слайд 26

TEST 2 13.09.2021 KEY CONCEPTS OF FINANCE You have won in

TEST 2

13.09.2021

KEY CONCEPTS OF FINANCE

You have won in a competition and

now can choose a prize:
5,000 rubles now
OR
10,000 rubles in a year
Which prize would you choose?
Test 2 (modified)
You have won in a competition and now can choose a prize:
5,000,000 rubles now
OR
10,000,000 rubles in a year
Which prize would you choose now?
Слайд 27

INVESTORS’ RATIONALITY (2) 13.09.2021 KEY CONCEPTS OF FINANCE Investors’ rationality can

INVESTORS’ RATIONALITY (2)

13.09.2021

KEY CONCEPTS OF FINANCE

Investors’ rationality can be limited by:
Asymmetric

attitude
to big and small amounts of money
Asymmetric attitude
to close and far future
Слайд 28

BASIC CONCEPTS OF FINANCE: PRIORITY TO CASH FLOWS (CASH IS KING)

BASIC CONCEPTS OF FINANCE: PRIORITY TO CASH FLOWS (CASH IS KING)

13.09.2021

KEY

CONCEPTS OF FINANCE

CASH can be immediately used for consumption or business objectives
Accountancy-based indicators do not fully reflect cash flows:
Accruals policy
Non-cash profits and losses
Practical implications of the concept
Financial reporting standards,
Performance indicators of companies and their divisions
Capital investments decision making and financial assets valuation

Слайд 29

INVESTORS’ RATIONALITY (3) 13.09.2021 KEY CONCEPTS OF FINANCE Investors’ rationality is

INVESTORS’ RATIONALITY (3)

13.09.2021

KEY CONCEPTS OF FINANCE

Investors’ rationality is limited by:
– The

historical belief in “paper-fixed” financial results got on the base of accountancy
Слайд 30

BASIC CONCEPTS OF FINANCE: FINANCIAL MARKETS EFFICIENCY Efficient markets hypothesis by

BASIC CONCEPTS OF FINANCE: FINANCIAL MARKETS EFFICIENCY

Efficient markets hypothesis by E.

Fama (EMH)
At the efficient capital market, all the information available is fully reflected in stock prices
That’s why the new information immediately changes stock prices – market signals should be considered by decision-takers
Financial markets data provides the fair asset pricing
Practical implications of the concept
Investors relations Mergers and acquisitions Dividend payments Personal investments

13.09.2021

KEY CONCEPTS OF FINANCE

- Предыдущая
Законы композиции
Следующая -
Воздействие человека на природу

Похожие презентации

Портфельное инвестрование. Сущность и виды инвестиционного портфеля
Понятие себестоимости. Роль себестоимости в обеспечении конкурентоспособности продукции предприятия
Источники финансирования инвестиционной деятельности
Государственный долг. Долговая политика РФ на современном этапе
VentureMeet_МИК_общая_18-08-22-1 (3)
Деньги. Кредит. Банки
Налоги и налогообложение. Теоретические основы налогообложения. Налоговая система РФ
Информация по выписке счет-фактуры за наличный расчет ТОО Газпром нефть-Казахстан
Stock Market
Расчетная работа ОАО Мечел. Аналитический баланс, вертикальный и горизонтальный анализ
Содержание и принципы межбюджетных отношений
Типовой вариант экзамена
Конвенция Юнситрал о международных переводных векселях и международных простых векселях
Кредитные карты. Кредит Европа Банк
Программа смешанного страхования жизни Гармония жизни
Своя игра. Налогообложение
Ценообразование на мировом рынке товаров и услуг
Концепция консолидированного бюджета Белгородской области
Доходный подход
Аудит кредиторской задолженности
История развития страхования в 21 веке в Германии
Учёт расчётных операций
Дебетовые карты
Презентация Болдинова
Основи фінансової діяльності підприємства. Тема 6
Программа страхования имущества при оплате коммунальных платежей
Финансовый ликбез
Управление дебиторской задолженностью и денежными активами предприятия
Вы можете прислать нам Вашу презентацию и мы опубликуем ее на сайте.
Обратная связь
Для правообладателей
Email: Нажмите что бы посмотреть