essentials of investments bodie kane and marcus 10th editi slid sahre

Essentials Of Investments Bodie Kane And Marcus 10Th Editi Slid Sahre Professional Managers Manage

Study notes of Bodie, Kane Marcus 5. 6. 7. 8. Zhipeng Yan Eurodollars: are deposits at foreign banks or foreign branches of American banks.

The material wealth of a society is determined ultimately the productive capacity of its economy, which is a function of the real assets of the economy: the land, buildings, knowledge, and machines that are used to produce goods and the workers whose skills are necessary to use those resources.

Financial assets, like stocks or bonds, contribute to the productive capacity of the economy indirectly, because they allow for separation of the ownership and management of the firm and facilitate the transfer of funds to enterprise with attractive investment opportunities.

Financial assets are claims to the income generated real assets.

Real vs. Financial assets: a.

Real assets produce goods and services, whereas financial assets define the allocation of income or wealth among investors.

They are distinguished operationally the balance sheets of individuals and firms in the economy.

Whereas real assets appear only on the asset side of the balance sheet, financial assets always appear on both sides of the balance sheet.

Your financial claim on a firm is an asset, but the issuance of that claim is the liability.

When we aggregate over all balance sheets, financial assets will cancel out, leaving only the sum of real assets as the net wealth of the aggregate economy.

Financial assets are created and destroyed in the ordinary course of doing business.

E.g. when a loan is paid off, both the claim and the obligation cease to exist.

In contrast, real assets are destroyed only accident or wearing out over time.

II. Financial markets and the economy 1.

Smoothing consumption: (e.g.

Allocation of risk: virtually all real assets involve some risk (so do financial assets).

If a person is uncertain about the future of GM, he can choose to buy stock if he is more or he can buy bonds, if he is more conservative.

Essentials Of Investments Bodie Kane And Marcus 10Th Editi Slid Sahre Professional Managers Manage

Separation of ownership and management: Let professional managers manage the firm.

Owners can easily sell the stocks of the firm if they like the incumbent management team or the managers through board of directors or use compensation plans tie the income of managers to the success of the firm In some cases, other firms may acquire the firm if they observe the firm is underperforming (market discipline).

Tax concerns: people in different tax brackets need different financial assets with different tax characteristics.

Securitization: the biggest securities are for credit card debt, car loans, home equity loans, student loans and debt of firms.

Pools of loans typically are aggregated into securities.

The transformation of these pools into standardized securities enables issuers to deal in a volume large enough that they can pass intermediaries.

Financial engineering: the process of bundling and unbundling of an asset.

Chapter Two: Financial Instruments I.

II. Financial markets are segmented into money markets and capital markets.

Money market instruments (they are called cash equivalents, or just cash for short) include marketable, liquid, debt securities.

Capital markets include and riskier securities.

Money Market: 1. Investors buy the bills at a discount from the stated maturity value and get the face value at the maturity.

Sales of bills are conducted via auction, at which investors can submit competitive or noncompetitive bids.

Tbills sell in minimum denominations of only The income earned on is 2.

CDs issued in denominations greater than are usually negotiable.

Shortterm CDs are highly marketable.

CP: commerical paper, large companies often issue their own shortterm unsecured debt notes rather than borrow directly from banks.

Very often, CP is backed a bank line of credit, which gives the borrower access to cash that can be used to pay off the paper at maturity.

Usually, it is issued in multiples of So, small investors can invest in CP only indirectly, via money market mutual funds.

When the bank endorses the order for payment as it assumes responsibility for ultimate payment to the holder of the acceptance.

Bas are considered very safe assets because traders can substitute the credit standing for their own.

Study notes of Bodie, Kane Marcus 5.

Zhipeng Yan Eurodollars: are deposits at foreign banks or foreign branches of American banks.