The Investment Environment P V VISWANATH FOR A

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The Investment Environment P. V. VISWANATH FOR A FIRST COURSE IN INVESTMENTS

The Investment Environment P. V. VISWANATH FOR A FIRST COURSE IN INVESTMENTS

Learning Goals 2 �Distinguish between the real economy and the financial economy �The Financial

Learning Goals 2 �Distinguish between the real economy and the financial economy �The Financial System �What is the Role of the financial markets?

Real Assets vs Financial Assets 3 � Real Assets Determine the productive capacity and

Real Assets vs Financial Assets 3 � Real Assets Determine the productive capacity and net income of the economy Examples: Land, buildings, machines, knowledge used to produce goods and services � Financial Assets Claims on real assets � The two systems are parallel, but not entirely You can have trading in financial assets, with no change in the amount of real assets, or you can have creation of new financial assets which then also causes a change in real assets. Sometimes financial assets that have not been traded up to that point then become tradeable – i. e. securitization, but this does not increase the amount of real assets.

Financial System: Flow of Funds 4 P. V. Viswanath

Financial System: Flow of Funds 4 P. V. Viswanath

Role of Financial Markets 5 �Information Role: Capital flows to companies with best prospects

Role of Financial Markets 5 �Information Role: Capital flows to companies with best prospects �Consumption Timing: Use securities to store wealth and transfer consumption to the future �Allocation of Risk: Investors can select securities consistent with their tastes for risk �Separation of Ownership and Management: This allows the firm to operate on a day-to-day basis even as shareholders acquire increased liquidity and change possibly from minute-to-minute. However, with stability comes agency problems. Are managers interested in maximizing shareholder wealth?

Players in Financial Markets 6 �Households �Firms �Government �Financial Intermediaries/Financial Service Companies

Players in Financial Markets 6 �Households �Firms �Government �Financial Intermediaries/Financial Service Companies

Examples of Financial Intermediaries 7 �Commercial Banks �Insurance Companies �Pension and Retirement Funds �Mutual

Examples of Financial Intermediaries 7 �Commercial Banks �Insurance Companies �Pension and Retirement Funds �Mutual Funds �Investment Banks �Venture Capital Firms �Asset Management Firms �Information Service Providers P. V. Viswanath

The Investment Process �Top down 8 Asset Allocation – how much to invest in

The Investment Process �Top down 8 Asset Allocation – how much to invest in broad security classes Security Selection – what securities to hold within a security class �Bottom up Security Analysis �Start with bottom up and pay attention to portfolio characteristics

ENVIRONMENT ENVIRONMENT Define environment ENVIRONMENT Environment the socialENVIRONMENT ENVIRONMENT Define environment ENVIRONMENT Environment the social
The Investment Environment P V VISWANATH FOR AThe Investment Environment P V VISWANATH FOR A
BUSINESS ENVIRONMENT BUSINESS ENVIRONMENT What is Environment EnvironmentBUSINESS ENVIRONMENT BUSINESS ENVIRONMENT What is Environment Environment
Analyzing Marketing Environment ENVIRONMENT Macro Environment Micro EnvironmentAnalyzing Marketing Environment ENVIRONMENT Macro Environment Micro Environment
Investment Decision Rules 1 P V VISWANATH FORInvestment Decision Rules 1 P V VISWANATH FOR
Choosing an Investment Portfolio P V Viswanath BasedChoosing an Investment Portfolio P V Viswanath Based
NPV and Other Investment Criteria P V ViswanathNPV and Other Investment Criteria P V Viswanath