how to read financial-papers
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This document discusses how to understand basic financial terms and markets. It provides learning goals and materials for understanding finance and the financial system. Key terms and instruments in the money market are defined, including treasury bills, commercial paper, certificates of deposit, and bankers' acceptances. The roles of various financial institutions and how funds flow between lenders, borrowers, and institutions are also outlined.
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how to read financial-papers
- 1. How to read financial papers Basic financial terms, instruments and markets to know in order to understand news Vallyon Andrea 2010 1
- 2. How to read financial papers How to get information for the best investments? Vallyon Andrea 2010 2
- 3. Would you have invested? Vallyon Andrea 2010 3
- 4. December 1977: Arrested for bad driving Vallyon Andrea 2010 4
- 5. The entire Microsoft staff. Albuquerque, 1978 Vallyon Andrea 2010 5
- 6. Learning goals Define Finance and the Financial System Understand the relationship between financial institutions and markets Describe the role of money and capital flow in the financial system Define the money and its functions 6 Vallyon Andrea 2010
- 7. Materials to learn from Stephen Valdez: An Introduction to Global Financial Markets,Macmillan Press Ltd.1997 – chapter 1 György Székely: The Essence of Money and Banking A Handbook for Financial Managers. KJK-Kerszöv Kft. 2002. CH 1 Lawrence J. Gitman: Principles of Managerial Finance, Addison - Wesley 10th Edition – see sharepoint: CH1:21-28old. Sharepoint: Keown CH2 Financial Markets and Interest rates Lecture ppt. Vallyon Andrea 2010 7
- 8. Indicative aim Link theory with the ‘real’ world. Vallyon Andrea 2010 8
- 9. "In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time - none, zero."-- Charlie Munger Vallyon Andrea 2010 9
- 10. Money = Happiness? Vallyon Andrea 2010 10
- 11. Power of Money and Finance "We witnessed the collapse of the financial system,' said Mr. Soros. "There's no sign we are anywhere near the bottom." Vallyon Andrea 2010 11
- 12. Vallyon Andrea 2010 12
- 13. Securities Funds FINANCIAL MARKETS -Money and Capital markets -OTC, Stock- exchanges Funds ? LENDERS -HOUSEHOLDS -Government Funds priv.placement ? BORROWERS -COMPANIES -Government -Municipalities Deposits Funds Loans FINANCIAL INSTITUTIONS -Commercial banks,Investment banks, Mutual funds,Leasing Funds comp.,etc. Vallyon Andrea 2010 13
- 14. Investment decision „All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies„ Warren Buffett Vallyon Andrea 2010 14
- 15. Money evolution I. Direct interchange of commodities (barter trade) II. The general equivalents (salt, slaves etc.) – Served as a basis of comparison Vallyon Andrea 2010 15
- 16. Criteria of money Physical essentials: – Cheap to produce – Homogeneously equal – Highly divisible – Convenient to carry – Universally acceptable – Stability in value Vallyon Andrea 2010 16
- 17. III. Functions of money – Measure of value (értékmérő) – Means of turnover (forgalmi eszköz) – Medium of payment, medium of exchange (fizetési eszköz) –standard of deferred payment (halasztott fizetési eszköz) – Store of wealth (kincsképző) – World money – if accepted internationally Vallyon Andrea 2010 17
- 18. When did money first appear? All equivalents are money Karl Marx – only gold Today? –credit money system Vallyon Andrea 2010 18
- 19. Think About That!: Vallyon Andrea 2010 19
- 20. Era of metals Monometallism Bimetallism Greshams axiom. The good money was crowded out by the worse Vallyon Andrea 2010 20
- 21. Money substitutes Growing turnover Need to increase rotation Appearance of substitutes Vallyon Andrea 2010 21
- 22. Money substitutes 2 Acceptability Discounting papers Commercial papers, trade bills (kereskedelmi váltó) Today –e-money Vallyon Andrea 2010 22
- 23. Pyramid shape analysis For long term Fundemental analysis Economic variables and the exchange rate Q? company country world economy Vallyon Andrea 2010 23
- 24. Participants bearish and bullish traders and speculators Vallyon Andrea 2010 24
- 25. A VERY Bad Bear! Vallyon Andrea 2010 25
- 26. Market terminologies – Secondary and primary – Money and bond market, domestic and international markets – Wholesale and retail market – Open and closed ( open offer for sale and private placing – Claim for the interest (Bearer and registered securities) Vallyon Andrea 2010 26
- 27. Money market Short term instruments Pure discount securities Contracts up to 1 year Huge volume and vigorous competition No physical place Essentially for professionals ( banks, fin. institutional investors, brokerage firms, companies) Liquidity ( fine spreads based on interest rate of lending and borrowing) Creditworthiness (risk and return) Vallyon Andrea 2010 27
- 28. Financial instruments Money market instruments – Treasury bills (T-bill) – Local authority/ public utility bills – Certificate of deposit (CD) – Commercial paper (CP) – Bill of exchange – Bankers` acceptance (BA) – Federal agency securities (Fannie Mae) Vallyon Andrea 2010 28
- 29. Financial instruments Other possibilities – Call money – Interbank market – Repurchase agreement /repo/ – - Time deposit Vallyon Andrea 2010 29
- 30. Call money – Call money – Term: very short period of time • Overnight(12p.m-12p.m. next day) • 3 or 7 days notice – Negotiable: no – Money is lent by one bank to another and may be called back anytime Vallyon Andrea 2010 30
- 31. Money market securities T-bills – Domestic instruments issued by governments to raise short term finance balancing cashflow – Non-interest bearing and interest-bearing, sold at discount in auction – Negotiable – Generally 13,26,52 weeks Certificate of deposit - CD – Usually issued by banks, is simple the evidence of time deposit – Negotiable not as time deposit – Sold at discount or pay coupon – Interest payed at maturity – 30 days to 3 month or could be longer Vallyon Andrea 2010 31
- 32. Money market securities 2 Commercial paper- CP – Issued by large, safe and well-known companies bypassing banks to achieve lower borrowing rates (sometimes below the bank’s prime rate) – Very short term (max 270 days, most 60days or less) – Issued at discount – Unsecured security Vallyon Andrea 2010 32
- 33. Money market securities Trade bill, bills of exchange, bankers’acceptance – Used by companies for trade purposes – The seller draws up a bill to the buyer to pay and asks to sign it – Could be sold at a discount to the bank – Bank’s signature is a guaranty ( eligible bills in UK the Bank of England is the guarantor) Vallyon Andrea 2010 33
- 34. Capital market Instruments – Bonds – Government bonds – Local authority papers – Mortgage or other assets backed bonds – Corporate – Foreign – Junk – Shares – Preferred – Normal Innovations – Convertibles – Variables Investment notes Vallyon Andrea 2010 34
- 35. Thanks for your attention! Vallyon Andrea 2010 35
Editor's Notes
- Feb. 23 (Bloomberg) -- Billionaire investor George Soros said the current economic upheaval has its roots in the financial deregulation of the 1980s and signals the end of a free-market model that has since dominated capitalist countries. Liberalization of the financial industry begun by the Reagan administration has led to a series of crises forcing government intervention, Soros told economists and bankers at a Feb. 20 private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said. Regulators are in part to blame because they “abrogated” their responsibilities, Soros, 78, said. The philosophy of “market fundamentalism” was now under question as financial markets have proved to be inefficient and affected by biases rather than driven by all the available information, he said. “We’re in a crisis, I think, that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said, adding that the Federal Reserve had created several by lowering interest rates. The September collapse of Lehman Brothers Holdings Inc. was the point at which the Wall Street crisis spilled into the real economy, said Soros, whose firm oversees $21 billion. “The economy went into freefall and is still falling and we don’t know where the bottom will be until we get there and there’s no sign that we are anywhere near a bottom,” he said. The scale of the problem is more than in the Great Depression because of the leverage involved. The ratio of debt to gross domestic product has increased from 160 percent in the 1920s to 350 percent last year, and is set to rise to 500 percent, he said. The real estate bubble was created as much by “relaxed” lending standards and the valuation of collateral as the availability of credit, he said. The bubble began in the early 1980s, and the subprime-mortgage debacle acted as the “detonator,” Soros said. The crisis was made possible by the globalization of financial markets and securitization of debt, he said. Risk management has become so “refined and sophisticated” regulators can no longer follow what is happening, he said.