- Topic 1: Overview of Finance
- 1.1 What Is Finance?This is the current section.
- 1.2 Financial Securities
- 1.3 Primary Financial Markets
- 1.4 Secondary Financial Markets
- 1.5 The Role of Financial Markets
- 1.6 Trading in Financial Markets
- 1.7 Efficiency in Market Prices
- 1.8 Calculating Security Returns
- 1.9 The Goal of the Firm
- 1.10 Issues Relating to the Maximization of Shareholder Value
- 1.11 Knowledge Check
1.1 What Is Finance?
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Demonstrate an understanding of financial securities and their key characteristics.
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Explain the difference between primary and secondary financial markets.
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Articulate the role of financial markets in a global economy to include legal, ethical, and social responsibility.
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Understand the mechanisms of trading in financial markets.
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Understand the concept of efficient capital markets.
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Compute security returns and understand the intuition of the risk and return trade-off as it pertains to value added to stakeholders.
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Demonstrate an understanding of the various possible goals of the firm and issues relating to maximization of shareholder value and stakeholder benefits.
A commonly used definition of economics is the study of management or the allocation of scarce resources. Like most business disciplines, finance is a subfield within economics. Here, finance
Before we get started, let’s discuss three important areas in finance:
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Corporate finance
: The first area is corporate finance, which focuses on financial decision-making by a firm’s management. -
Investments
: The second area is investments. This area is devoted to understanding the various types of financial instruments—such as stocks and bonds—and how to value these instruments. -
Financial institutions
(banking): The third area is banking. Almost everyone taking this course will have already visited a bank and will understand that banks make money by paying depositors a smaller interest rate than the interest rate they charge to borrowers.
Hopefully, we will understand that the management or allocation of capital is important in each of these three areas. In this course, we will explore financial markets and discuss the differences between bonds and stocks. We will learn methods to value stocks and bonds. From the corporation’s perspective, we will understand the trade-off between using debt
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