Management and Organizational Studies 1023A/B Chapter Notes - Chapter 6: Capital Expenditure, Government Debt, Byrsonima Crassifolia
29 Nov 2017
School
Department
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Lecture 6 - An Introduction to Finance
Finance: the study of how and under what terms savings (money) are allocated between
lenders and borrowers
1.1 Real Versus Financial Assets
Canada’s Balance Sheet
Balance Sheet: snapshot of what is owned (assets) and what is owed (liabilities) at a particular
time
Net worth: the difference between the value of what is owned and what is owed
Three major domestic groups in our economy: (1) Individuals, referred to as the household
sector by Statistics Canada (2) businesses and (3) government
— One person's debt is another person’s asset
Real Asset
Real Asset: the tangible things that compose personal and business assets
1) Personal Assets: the value of houses, the land the houses are on, the major appliances in
the houses, and cars (major appliances and cars are called consumer durables as they
last many years)
2) Business Major Assets: office buildings, factories, mines (non-residential structures); the
machinery and equipment in those structures; the land they are on; and the stock or
inventories of things waiting to be used or sold
Asset Acquisitions: building a new factory, increase the level of their holdings, or strategic
acquisitions like buying another firm (also called capital expenditures (capex) decisions)
Corporate Financing: ways to finance expenditures on the liability side
Info:
-United Nation’s definition of wealth includes both human capital and natural capital such as
land, forests, fossil fuels, and minerals
-StatCan estimates a part of this value^
-Canada comes out as the third-weightiest country studied
Financial Assets
NBSA—National Balance Sheet Accountants: collect financial data on the major agents in the
financial system and then track the borrowing and lending between these agents
—The value of the net assets owned by Canadian residents, or our net worth, is the sum of
these two or? what is “these two”
Net Foreign Liability = the difference between the total net financial assets of the combined
government and business sector and the net financial assets of the household sector (absolute
values of both)
Four Major Areas of Finance:
1) Personal finance
2) Government Finance
3) Corporate Finance
4) International Finance
Households
-Largest major real assets in Canada is homes, then consumer durables, then the land
-Largest major financial assets in Canada are money on deposit mainly with banks, debt
securities, pension and insurance assets, and the market value of the shares in corporations
-Offsetting financial assets are consumer credit, loans, and mortgage debt taken out to buy
homes
-Older high income individuals tend to save money and be wealthier where as younger
individuals are in debt
1.2 The Financial System
Overview
Financial Intermediaries: entities that invest funds on behalf of others and change the nature
of the transactions
Market Intermediaries: Entities that facilitate the working of markets and help provide direct
intermediation but do not change the nature of the transaction; also call brokers
Channels of Intermediation
Intermediation: the transfer of funds from lenders to borrowers
Direct Claims: borrowing directly
from individuals
Indirect Claims: borrowing from
individuals who have first loan their
savings to (deposited them into) if
financial institution, which in turn
lends to the ultimate borrowers
Non-Market Transaction Direct
Intermediation: the lender
provides money directly to the
ultimate borrower without any help
from a specialist
Market Intermediaries Direct
Intermediation: an entity that facilitates the working of markets by helping a borrower who is
not aware of the available lenders or can’t find an individual that can lend the full amount
actually find someone who can lend the money (also known as brokers)—they do not change
the nature of the transaction itself
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MOS 1023A/B Full Course Notes
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Document Summary
Finance: the study of how and under what terms savings (money) are allocated between lenders and borrowers. Balance sheet: snapshot of what is owned (assets) and what is owed (liabilities) at a particular time. Net worth: the difference between the value of what is owned and what is owed. Three major domestic groups in our economy: (1) individuals, referred to as the household sector by statistics canada (2) businesses and (3) government. One person"s debt is another person"s asset. Asset acquisitions: building a new factory, increase the level of their holdings, or strategic acquisitions like buying another rm (also called capital expenditures (capex) decisions) Corporate financing: ways to nance expenditures on the liability side. United nation"s de nition of wealth includes both human capital and natural capital such as land, forests, fossil fuels, and minerals. Statcan estimates a part of this value^ Canada comes out as the third-weightiest country studied.
