MGTA01H3 Lecture Notes - Lecture 12: Investment Banking, French Wine, Protectionism

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Published on 5 Dec 2018
School
Department
Course
Professor
MGTA01 PROF. CHRIS BOVAIRD
LECTURE 12 INTERNATIONAL TRADE
Review From Last Week
- Finance
o Capital is a factor of production
o Both existing and new businesses need capital
o That is the role of finance
o The world is divided into two groups:
o People and organizations with ideas but no $$
o People with $$ but no immediate plans to spend it
o The purpose of finance is to connect the two groups
o Businesses have plans and ideas:
o Develop a new product
o Expand to a new country
o Build a new factory
o etc.
o But - businesses must spend $$
o Long before they can collect
- Why businesses need finance
- When a business is first created, and then grows, it will need:
- office or factory space
- office equipment or machinery
- employees
- raw materials
- marketing budget
- etc.
- All of this must be paid for
- A business must spend money before it can make money
- This may take some time
- Finance Industry
- In Canada, there is a large industry
- with many types of business (banks, investment dealers, pensions funds, insurance,
leasing businesses, factors, venture capitalists, etc.)
- They collect capital from some people, organize/package the capital, then distribute the
capital to others
- Called “Intermediaries” -> Go between/in the middle of the two respective parties
- Debt Capital
- Money that is lent, must be repaid, lender gets no ownership, lender gets interest
- Equity Capital
- Money that is given, never repaid, lender gets ownership, owner gets profit
- Source of debt capital: banks
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- Banks collect from people with money but no immediate plans (“depositors”)
- Make loans to people with plans and ideas but no money (“borrowers”)
- Banks are one (best known) source of capital
- Banks provide “debt” capital (they lend money)
- The service that banks provide:
- Finding the capital (attracting depositors)
- Packaging the capital
- Organizing the transaction
- Banks charge interest to borrowers
- Equity Capital: Investors
- Ownership in a business is called
- “equity” or “owners’ equity”
- A business needs capital:
- Founders can ask family, friends, other investors to buy shares
- 1,000 shares @ $100 = $100,000
- Corporations sell shares to anyone who wants to invest
- Investors:
- give $
- get shares
- share in ownership of business
- share in profit / growth of business
- Intermediary: Investment Banks
- Some people (investors) want to buy shares
- Some businesses want to sell shares
- Investment dealers also called Investment Banks help them find each other and
organize the transactions
- Investment Bank: Intermediary
- Investment dealers help sellers:
- Use their knowledge of the market to:
- determine price and quantity to sell (1 million shares at $1 or 10,000 shares at $100?)
- advise on timing of sale (now or wait a year?)
- find buyers (use stockbrokers as sales force)
- Stockbrokers help people (investors) and businesses buy and sell shares
- Investment dealers help buyers
- Use their knowledge of the market to:
- Advise on best investments (invest in oil or bio-tech or artificial intelligence?)
- Advise on timing (buy shares now or wait one year?)
- Advise on price (is $1,100 fair price for 1 share in Amazon?)
- Investors buy shares since they get a % of profit of a growing business
- When a business sells equity, it has more capital also more owners
- Profit (of larger business) is shared more widely
- Investments: A decision to commit capital NOW to a project that will provide MORE
capital in future (ex: Education)
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Document Summary

When a business is first created, and then grows, it will need: All of this must be paid for . A business must spend money before it can make money. In canada, there is a large industry with many types of business (banks, investment dealers, pensions funds, insurance, leasing businesses, factors, venture capitalists, etc. ) They collect capital from some people, organize/package the capital, then distribute the capital to others. Called intermediaries -> go between/in the middle of the two respective parties. Money that is lent, must be repaid, lender gets no ownership, lender gets interest. Money that is given, never repaid, lender gets ownership, owner gets profit. Banks collect from people with money but no immediate plans ( depositors ) Make loans to people with plans and ideas but no money ( borrowers ) Banks are one (best known) source of capital. Banks provide debt capital (they lend money) Founders can ask family, friends, other investors to buy shares.

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