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Lecture 1

BUSI 3410U Lecture Notes - Lecture 1: Durable Good, Buy Side, Joseph Stiglitz

Course Code
BUSI 3410U
Bin Chang

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Real Vs. Financial Assets
- Debt on the balance sheet refer to debt securities; according to StatsCan
- Real Assets
o Tangible things
Housing→ residential structures
Consumer durables: Washing machines, cars, Tvs, etc
Offices and factories : Non-residential structures
Lathes, tractors: machinery and equipment
o Intangible Things→ patents, processes; which are underestimated on the balance sheet
o Consumer items plus real investments to produce gods
- Wealth of the world is increased with economic growth
o distributed with welfare policies and appropriate income distribution
The Financial System
- borrowing and lending→ use of money and the source of money
o Household sector→ major interest: consumers
Personal Finance: Predominantly lends
o Business Sector→ Intermediate producer: Real investment
Business Finance: Predominantly borrows
o Government Sector
Public goods → education, health and welfare (HEW): provincial
Defence and trade: Federal
Gov’t Finance: predominantly Borrows
o Foreign Sector
International Finance: mixed
o when household is positive; saves/ lenders
o gov’t/ businesses/ foreigners are net borrowers
- Financial Markets
o Financial Assets→ security under which funds are lent; a “claim”
Debt contractual obligation where rights are determined under contract law
Equity → ownership claim (share) on the residual income(profits) of an
enterprise rights determined under securities and corporate law
o Finance is based on:
Law→ the specific rights attached to a security
Accounting→ understanding the information flow
Economics→ understanding individual and corporate behaviour
- The borrower needs help to find suitable lenders, which is what market intermediaries (IPOs)
- Market Intermediaries (IPO) ; where money flow between company and investors ; tsx is
where investment bankers are involves
- Financial Intermediaries (Bank) ; bookstore TD Investors ; investors have no direct
relation with bookstore
Direct non- market Transactions
- Problems of Direct Non-Market Intermediation; Non-market = no others are involved
1. Search Costs → How do you find someone to lend money to?
2. Double co-incidence of wants→ DO they want to borrow exactly what you want to
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