Chapter 1
Role of Finance
© 2000 John Wiley & Sons, Inc.
Chapter Outcomes
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
Define what is meant by finance
Explain why finance should be
studied
Describe the basic requirements in a
modern financial system
Identify the major financial
intermediaries and their roles in the
U.S. financial system
2
Chapter Outcomes
(Continued)
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

Identify and explain measures of
wealth that are traded in U.S.
financial markets
Describe the financial functions
performed in the U.S. financial
system
Identify and discuss some career
opportunities in finance
3
What Is Finance?
FINANCE:
Study of how individuals,
institutions,and businesses acquire,
spend, and manage financial
resources
4
Types Of Finance
MACRO FINANCE:
Study of how financial
intermediaries, financial markets,
and policy makers interact and
operate within financial systems
BUSINESS FINANCE:
Study of financial planning, asset
management, and fund raising by
businesses and financial institutions
5
Types Of Finance
(Continued)
PERSONAL FINANCE:
Study of how individuals prepare for
financial emergencies, protect
against premature death and
property losses, and accumulate
wealth
6
Why Study Finance?

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As an individual you should want to
make informed economic decisions
Knowledge of finance should help
you better manage existing financial
resources and accumulate wealth
over time
To be successful in the business
world, it is important to have an
understanding of business finance
7
Basic Requirements Of A
Financial System

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
Monetary system
Savings-investment process
Financial markets
8
Five Types Of Financial
Intermediaries
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Depository institutions
Contractual savings organizations
Investment organizations
Finance/credit organizations
Securities markets-related
organizations
9
Basic Types Of Securities Markets

PRIMARY SECURITIES MARKET:
market involved in creating and
issuing new securities, mortgages,
and other claims to wealth

SECONDARY SECURITIES MARKET:
market for transferring existing
securities between investors
10
Measures Of Wealth



MONEY: anything that is generally
accepted as payment
REAL ASSETS: land, buildings,
machinery, inventory, and precious
metals
FINANCIAL ASSETS: claims against
the income or assets of others
11
Types Of Financial Markets


MONEY MARKETS: where debt
instruments of one year or less are
traded
CAPITAL MARKETS: markets for
longer-term debt securities and
corporate stocks
12
Types Of Money Market
Instruments
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U.S. Treasury bills
Negotiable certificates of deposit
Bankers’ acceptances
Federal funds
Commercial paper
Repurchase agreements
13
Types Of Capital Market
Securities And Instruments
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U.S. Treasury notes and bonds
U.S. Government agency bonds
State and local government bonds
Corporate bonds
Corporate stocks
Real estate mortgages
14
Financial Functions In The U.S.
Financial System
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Creating money
Transferring money
Accumulating savings
Lending/investing savings
Marketing financial assets
Transferring financial assets
15
Career Opportunity Areas In
Finance

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Business financial management
Financial intermediaries
Securities markets field
Government or non-for-profit
organizations
Personal financial planning
16
Plan Of Study

PART 1: THE FINANCIAL SYSTEM
covers the environment of finance
including the role of financial
institutions in it

PART 2: INVESTMENTS
covers financial markets and the
process of investing in financial
securities such as stocks and bonds
17
Plan of Study
(Continued)

PART 3: BUSINESS FINANCE
covers financial management and
how the business sector interacts
with the financial system
18