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Chap 001

Investments and Financial Assets Essential nature of investment - Reduced current consumption - Planned later consumption Real Assets - assets used to produce goods and services Financial Assets – Claims on Real Assets Cover image Table 1. Balance Sheet - U.S. Households Cover image Table 2. Domestic Net Worth Cover image Table 3. Major Classes of Financial Assets Debt - Money market instruments - Bonds Common stock Preferred stock Derivative securities Cover image Active management Finding undervalued securities Timing the market Pass

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An Nguyen
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28 views17 pages

Chap 001

Investments and Financial Assets Essential nature of investment - Reduced current consumption - Planned later consumption Real Assets - assets used to produce goods and services Financial Assets – Claims on Real Assets Cover image Table 1. Balance Sheet - U.S. Households Cover image Table 2. Domestic Net Worth Cover image Table 3. Major Classes of Financial Assets Debt - Money market instruments - Bonds Common stock Preferred stock Derivative securities Cover image Active management Finding undervalued securities Timing the market Pass

Uploaded by

An Nguyen
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 17

Investments

CHAPTER 1
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The Investment Environment


Slides by Richard D. Johnson
McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

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Investments & Financial Assets


Essential nature of investment
Reduced current consumption Planned later consumption

Real Assets
Assets used to produce goods and services

Financial Assets
Claims on real assets
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Table 1.1 Balance Sheet U.S. Households

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Table 1.2 Domestic Net Worth

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Major Classes of Financial Assets


Debt
Money market instruments

Bonds

Common stock Preferred stock Derivative securities

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Financial Markets and the Economy


Information Role Consumption Timing Allocation of Risk Separation of Ownership and Management
Agency Issues

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Crisis in Corporate Governance


Accounting Scandals
Examples Enron and WorldCom

Analyst Scandals
Example Citigroups Salomon Smith Barney

Initial Public Offerings


Credit Swiss First Boston

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The Investment Process


Asset allocation Security selection Risk-return trade-off Market efficiency Active vs. passive management

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Active vs. Passive Management


Active Management Finding undervalued securities Timing the market
Passive Management No attempt to find undervalued securities No attempt to time Holding an efficient portfolio
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Players in the Financial Markets


Business Firms net borrowers Households net savers Governments can be both borrowers and savers Investment Bankers

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Key Trends - Globalization


International and Global Markets Continue Developing Managing foreign exchange Diversification to improve performance Instruments and vehicles continue to develop (WEBs) Information and analysis improves

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Figure 1.1 Global Debt Issue

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Key Trends - Securitization


Securitization & Credit Enhancement Offers opportunities for investors and originators Changes in financial institutions and regulation Improvement in information capabilities Credit enhancement and its role

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Figure 1.2 Asset-backed Securities

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Key Trends - Financial Engineering


Repackaging Services of Financial Intermediaries Bundling and unbundling of cash flows Slicing and dicing of cash flows Examples: strips, CMOs, dual purpose funds, principal/interest splits

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Figure 1.3 Building a Complex Security

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Figure 1.4 Unbundling Mortgage Security

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