Tài chính doanh nghiệp - Chapter One: Introduction

Chapter OneIntroduction1McGraw-Hill/IrwinWhy study Financial Markets and Institutions?Prudent investment and financing requires a thorough understanding ofthe structure of domestic and international marketsthe flow of funds through domestic and international marketsthe strategies used to manage risks faced by investors and savers2McGraw-Hill/IrwinFinancial MarketsFinancial markets are structures through which funds flowFinancial markets can be distinguished along two dimensionsprimary versus secondary marketsmoney versus capital markets3McGraw-Hill/IrwinPrimary versus Secondary MarketsPrimary marketsmarkets in which users of funds (e.g., corporations and governments) raise funds by issuing financial instruments (e.g., stocks and bonds)Secondary marketsmarkets where financial instruments are traded among investors (e.g., NYSE and Nasdaq)4McGraw-Hill/IrwinMoney versus Capital MarketsMoney marketsmarkets that trade debt securities with maturities of one year or less (e.g., CDs and U.S. Treasury bills)Capital marketsmarkets that trade debt (bonds) and equity (stock) instruments with maturities of more than one year5McGraw-Hill/IrwinMoney Market Instruments Outstanding, ($Bn)6McGraw-Hill/IrwinCapital Market Instruments Outstanding, ($Bn)7McGraw-Hill/IrwinForeign Exchange (FX) MarketsFX marketstrading one currency for another (e.g., dollar for yen)Spot FXthe immediate exchange of currencies at current exchange ratesForward FXthe exchange of currencies in the future on a specific date and at a pre-specified exchange rate8McGraw-Hill/IrwinDerivative Security MarketsDerivative securitya financial security whose payoff is linked to (i.e., “derived” from) another security or commoditygenerally an agreement to exchange a standard quantity of assets at a set price on a specific date in the future9McGraw-Hill/IrwinFinancial Market RegulationThe Securities Act of 1933full and fair disclosure and securities registrationThe Securities Exchange Act of 1934Securities and Exchange Commission (SEC) is the main regulator of securities markets10McGraw-Hill/IrwinFinancial Institutions (FIs)Financial Institutionsinstitutions through which suppliers channel money to users of fundsFinancial Institutions are distinguished by whether they accept depositsdepository versus non-depository financial institutions11McGraw-Hill/IrwinUsers of Funds(corporations)Suppliers of Funds(households)Financial Claims(equity and debt instruments)CashFlow of Funds in a World without FIsFlow of Funds in a World without FIs12McGraw-Hill/IrwinUsers of FundsFIs(brokers)FIs(assettransformers)Suppliers of FundsFinancial Claims(equity and debt securities)Financial Claims(deposits and insurance policies)CashCashFlow of Funds in a World without FIsFlow of Funds in a World with FIs13McGraw-Hill/IrwinDepository versus Non-Depository FIsDepository institutionscommercial banks, savings associations, savings banks, credit unionsNon-depository institutionsinsurance companies, securities firms and investment banks, mutual funds, pension funds14McGraw-Hill/IrwinFIs Benefit Suppliers of FundsReduce monitoring costsIncrease liquidity and lower price riskReduce transaction costsProvide maturity intermediationProvide denomination intermediation15McGraw-Hill/IrwinFIs Benefit the Overall EconomyConduit through which Federal Reserve conducts monetary policyProvides efficient credit allocationProvide for intergenerational wealth transfersProvide payment services16McGraw-Hill/IrwinRisks Faced by Financial InstitutionsCreditForeign exchangeCountry or sovereignInterest rateMarketOff-balance-sheetLiquidityTechnologyOperationalInsolvency17McGraw-Hill/IrwinRegulation of Financial InstitutionsFIs are heavily regulated to protect society at large from market failuresRegulations impose a burden on FIs and recent U.S. regulatory changes have been deregulatory in natureRegulators attempt to maximize social welfare while minimizing the burden imposed by regulation18McGraw-Hill/IrwinGlobalization of Financial Markets and InstitutionsThe pool of savings from foreign investors is increasing and investors look to diversify globally now more than ever beforeInformation on foreign markets and investments is becoming readily accessible and deregulation across the globe is allowing even greater accessInternational mutual funds allow diversified foreign investment with low transactions costs19McGraw-Hill/Irwin