Ch1-Introduction to Finance.docx

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Management and Organizational Studies
Management and Organizational Studies 3370A/B
Maria Ferraro

Ch1: Introduction to Finance 3/29/2013 12:32:00 PM Finance: study of how/under what terms saving money= allocated, (may recognize similarity of finance and economics-studies how scarce resource are allocated in economy)  Management of an entity’s balance sheet o Distinct from economics- finance not just about how resources allocated, but under what terms/through what channels Financial Securities: whenever funds transferred, financial contract comes into existence Balance Sheet: snapshot of what owned, (assets) and owed, (liabilities) at particular time Net worth/Equity: difference between value of what’s owned and what’s owed 3 major domestic groups in economy- individuals/households, businesses, government Balance sheet shows all assets according to 6 major classifications Assets included under headings= real assets Real Assets: tangible things compose personal/business assets Personal Assets: value of houses, land houses are on, major appliances in houses, cars Consumer Durables: appliances/cars because they last many years Major Assets for businesses= office towers, factories, mines etc, (non- residential structures) Asset acquisitions/capital expenditure decisions- how firms arrive at decision to build new factory, increase level on inventory holdings, buying another firm etc… Corporate Financing- ways to finance capital expenditures decisions Financial Assets: what one individual has lent to another- one person’s positive financial asset=another person’s negative financial asset/liability  Formed legal documents that set out rights/obligations of all parties involved 4 major areas in finance- personal finance, government finance, corporate finance, international finance Household sector=primary provider of funds to business/government- non- resident sector being net provider of funds Financial System comprises of- financial intermediaries, market intermediaries Financial Intermediaries: entities that invest funds on behalf of others/change nature of transactions Intermediation: transfer of funds from lender to borrower  Direct intermediation- len
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