ACST101 Lecture Notes - Lecture 1: Warren Buffett, Fisher Equation, Annual Percentage Rate

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ACST101 LECTURE ā€“ 1/3/18
WK1; THE FINACIAL SYSTEM
*Read all CHAPTER 2*
Finance is about how individuals, companies and governments raise money and invest it to
maximise wealth. The movement of money between lenders and borrowers to maximise
wealth. It incorporates;
o Corporate Finance
o Asset Pricing
o Financial Markets
o Behavioural Finance
MONEY AND CURRENCY
Money and currency are terms usually used interchangeably. Money is a store of value
(something that maintains its intrinsic value).
FIAT current is a goī‡€erī…¶ī…µeī…¶t deī„reed īšforī…µ of ī…µoī…¶eī‡‡ī› aī…¶d is a ī…µediuī…µ of eī‡†ī„haī…¶ge ī„ut ī…¶ot
a good store of value.
Face Value > Intrinsic Value; FIAT CURRENCY
HISTORY OF $$$
o Barter; coincidence of wants
o Commodity-based; intrinsic value
o The Gold Standard; backed currency
o Fiat Currency; ī…¶o iī…¶triī…¶siī„ ī‡€alue, īšfiatī› is īšī„ī‡‡ orderī›. Curreī…¶ī„ī‡‡ that has ī‡€alue ī„eī„ause
the government says so.
o Crypto Currency
VALUE VS PRICE
We estimate asset values in the face of uncertainly by discounting cash flows at a rate of
return (interest rate). īžPrice is ī‡hat you pay, ī‡€alue is ī‡hat you getīŸ ā€“ Warren Buffet
THE FINACIAL SYSTEM
Provides a marketplace for money, enabling transfer of purchasing power between; market
participants, present and future time.
COMPANIES AND THE FINANCIAL SYSTEM
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Document Summary

Finance is about how individuals, companies and governments raise money and invest it to maximise wealth. The movement of money between lenders and borrowers to maximise wealth. It incorporates: corporate finance, asset pricing, financial markets, behavioural finance. Money and currency are terms usually used interchangeably. Money is a store of value (something that maintains its intrinsic value). Fiat current is a go(cid:448)er(cid:374)(cid:373)e(cid:374)t de(cid:272)reed (cid:858)for(cid:373) of (cid:373)o(cid:374)e(cid:455)(cid:859) a(cid:374)d is a (cid:373)ediu(cid:373) of e(cid:454)(cid:272)ha(cid:374)ge (cid:271)ut (cid:374)ot a good store of value. History of 29013: barter; coincidence of wants, commodity-based; intrinsic value, the gold standard; backed currency, fiat currency; (cid:374)o i(cid:374)tri(cid:374)si(cid:272) (cid:448)alue, (cid:858)fiat(cid:859) is (cid:858)(cid:271)(cid:455) order(cid:859). Curre(cid:374)(cid:272)(cid:455) that has (cid:448)alue (cid:271)e(cid:272)ause the government says so: crypto currency. We estimate asset values in the face of uncertainly by discounting cash flows at a rate of return (interest rate). (cid:862)price is (cid:449)hat you pay, (cid:448)alue is (cid:449)hat you get(cid:863) warren buffet.

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