COMMERCE 3FB3- Midterm Exam Guide - Comprehensive Notes for the exam ( 12 pages long!)

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FB3
• Professor: Jonathan Dushoff

Document Summary

Financial assets: claims on the income generated by real assets. Financial investment occurs as investors enter the securities markets and exchange cash for the financial instruments. Informational role: stock prices reflect i(cid:374)vestors" collective assess(cid:373)e(cid:374)t of a fir(cid:373)"s curre(cid:374)t perfor(cid:373)a(cid:374)ce and future prospects, consumption timing, people can shift their purchasing power from high earnings to low-earnings periods of life. Separation of ownership and management: agency problem. The participants: households, net suppliers of capital, purchase the securities issued by firms that need to raise funds. Firms: net demanders of capital, raise capital to pay for investment in plant and equipment, governments, tax revenue vs. expenditure. Saving and investing portfolios: collection of investment assets, rebalanced by selling existed securities and use the proceeds to buy new securities, asset allocation risk/return trade-off, stocks, bonds, cash, other. Financial intermediaries: banks, mutual funds, insurance cos, channeling funds from individuals to firms, retail stock brokers, executi(cid:374)g i(cid:374)vestors" decisio(cid:374)s. Investment dealers/bankers: raising new capital for firms.