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Chapter 1 Role of Finance


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Chapter 1 Role of Finance

  1. 1. Chapter 1 Role of Finance © 2000 John Wiley & Sons, Inc.
  2. 2. Chapter Outcomes <ul><li>Define what is meant by finance </li></ul><ul><li>Explain why finance should be studied </li></ul><ul><li>Describe the basic requirements in a modern financial system </li></ul><ul><li>Identify the major financial intermediaries and their roles in the U.S. financial system </li></ul>
  3. 3. Chapter Outcomes (Continued) <ul><li>Identify and explain measures of wealth that are traded in U.S. financial markets </li></ul><ul><li>Describe the financial functions performed in the U.S. financial system </li></ul><ul><li>Identify and discuss some career opportunities in finance </li></ul>
  4. 4. What Is Finance? <ul><li>FINANCE: </li></ul><ul><li>Study of how individuals, institutions,and businesses acquire, spend, and manage financial resources </li></ul>
  5. 5. Types Of Finance <ul><li>MACRO FINANCE: </li></ul><ul><li>Study of how financial intermediaries, financial markets, and policy makers interact and operate within financial systems </li></ul><ul><li>BUSINESS FINANCE: </li></ul><ul><li>Study of financial planning, asset management, and fund raising by businesses and financial institutions </li></ul>
  6. 6. Types Of Finance (Continued) <ul><li>PERSONAL FINANCE: </li></ul><ul><li>Study of how individuals prepare for financial emergencies, protect against premature death and property losses, and accumulate wealth </li></ul>
  7. 7. Why Study Finance? <ul><li>As an individual you should want to make informed economic decisions </li></ul><ul><li>Knowledge of finance should help you better manage existing financial resources and accumulate wealth over time </li></ul><ul><li>To be successful in the business world, it is important to have an understanding of business finance </li></ul>
  8. 8. Basic Requirements Of A Financial System <ul><li>Monetary system </li></ul><ul><li>Savings-investment process </li></ul><ul><li>Financial markets </li></ul>
  9. 9. Five Types Of Financial Intermediaries <ul><li>Depository institutions </li></ul><ul><li>Contractual savings organizations </li></ul><ul><li>Investment organizations </li></ul><ul><li>Finance/credit organizations </li></ul><ul><li>Securities markets-related organizations </li></ul>
  10. 10. Basic Types Of Securities Markets <ul><li>PRIMARY SECURITIES MARKET: market involved in creating and issuing new securities, mortgages, and other claims to wealth </li></ul><ul><li>SECONDARY SECURITIES MARKET: market for transferring existing securities between investors </li></ul>
  11. 11. Measures Of Wealth <ul><li>MONEY: anything that is generally accepted as payment </li></ul><ul><li>REAL ASSETS: land, buildings, machinery, inventory, and precious metals </li></ul><ul><li>FINANCIAL ASSETS: claims against the income or assets of others </li></ul>
  12. 12. Types Of Financial Markets <ul><li>MONEY MARKETS: where debt instruments of one year or less are traded </li></ul><ul><li>CAPITAL MARKETS: markets for longer-term debt securities and corporate stocks </li></ul>
  13. 13. Types Of Money Market Instruments <ul><li>U.S. Treasury bills </li></ul><ul><li>Negotiable certificates of deposit </li></ul><ul><li>Bankers’ acceptances </li></ul><ul><li>Federal funds </li></ul><ul><li>Commercial paper </li></ul><ul><li>Repurchase agreements </li></ul>
  14. 14. Types Of Capital Market Securities And Instruments <ul><li>U.S. Treasury notes and bonds </li></ul><ul><li>U.S. Government agency bonds </li></ul><ul><li>State and local government bonds </li></ul><ul><li>Corporate bonds </li></ul><ul><li>Corporate stocks </li></ul><ul><li>Real estate mortgages </li></ul>
  15. 15. Financial Functions In The U.S. Financial System <ul><li>Creating money </li></ul><ul><li>Transferring money </li></ul><ul><li>Accumulating savings </li></ul><ul><li>Lending/investing savings </li></ul><ul><li>Marketing financial assets </li></ul><ul><li>Transferring financial assets </li></ul>
  16. 16. Career Opportunity Areas In Finance <ul><li>Business financial management </li></ul><ul><li>Financial intermediaries </li></ul><ul><li>Securities markets field </li></ul><ul><li>Government or non-for-profit organizations </li></ul><ul><li>Personal financial planning </li></ul>
  17. 17. Plan Of Study <ul><li>PART 1: THE FINANCIAL SYSTEM covers the environment of finance including the role of financial institutions in it </li></ul><ul><li>PART 2: INVESTMENTS covers financial markets and the process of investing in financial securities such as stocks and bonds </li></ul>
  18. 18. Plan of Study (Continued) <ul><li>PART 3: BUSINESS FINANCE covers financial management and how the business sector interacts with the financial system </li></ul>