BA 3303 – Moore
Course Intro and Chapter 1
Fall 2006
Welcome to BA 3303 – Fall 2006
Foundations of Finance – Moore
Today’s Agenda:
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Introductions and Expectations
Syllabus
Course Overview
Chapter 1
Course Overview
Finance
 Generic and imprecise term covering many disciplines
 Main Areas/Topics
- Investments
- Corporate Finance
- International Finance
- Real Estate
- Financial Institutions
 Disciplines/Skills Integrated and Used in Finance
- Accounting
- Economics
- Mathematics
- Statistics
 Main Concerns in each area: Money, Financial Assets,
Resource Management and Efficient Allocation
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BA 3303 – Moore
Course Intro and Chapter 1
Fall 2006
Finance Specialties and Careers
 Financial Institutions
- Creation of Financial Assets - Investment Bankers and
Financial Intermediaries, commercial banks, S&L’s,
Insurance Companies
Goal is to transfer and efficiently allocate resources from
individual savings to firms and economy in exchange for
“fair” compensation
- Markets for Trading Financial Assets
- Regulation of Financial Markets
 Investments
- Big picture is the analysis of individual financial assets and
the construction of well diversified portfolios
- Functional Areas and Activities include financial planning,
identifying investor goals and risk preferences, and
constructing a well-diversified portfolio that matches the
identified goals.
 Corporate Finance
- Big picture is the overall financial management of the
business
- Functional Areas and Activities include financial planning,
cash and working capital management, fixed asset
acquisitions, short and long-term financing.
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BA 3303 – Moore
Course Intro and Chapter 1
Fall 2006
Chapter 1 – Financial Institutions
Financial Markets
Major Functions
1. Transfer funds (savings) from “individuals” into Investments
2. Transfer Title (ownership) of financial assets from sellers to
buyers (stocks, bonds, REIT’s Mutual Funds, Currencies,
Options, etc).
3. Overall goal is the efficient allocation of financial and
productive resources.
Market Mechanisms (Methods)
Direct Investment
- Start your own business with personal resources
- Invest in “Primary” security Market (stocks or bonds)
 Money transfers between individual and firm
Secondary Market Investment
- Financial Securities (assets) trade among individual
investors
- Note: Funds have already transferred to firm, hence, no new
cash invested
- d in productive resources.
Money – Role and Measures of Monetary Supply
Economic Definitions (Properties) of Money
- Store of Value
- Medium of Exchange
- Unit of Account
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BA 3303 – Moore
Course Intro and Chapter 1
Fall 2006
Measures of Money Supply (Economics)
M-1 Traditional Measure of Monetary Supply (Narrow
definition)
Big Picture
- Sum of coins and currency outside of banks plus demand
deposits held by public in depository institutions
- Components include:
1. Coin and Currency
2. Demand Deposits
3. “Checkable” Deposits (NOW’s)
4. Travelers’ Checks
M-2 Broad, Aggregate Measure of Monetary Supply
Big Picture
- M-1 plus Savings Accounts and Time Deposits
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BA 3303 – Moore
Course Intro and Chapter 1
Fall 2006
Interest Rates (rent on money)
- Expressed as a percentage
- Many commonly used terms associated with rate of interest
1. Interest Rate
2. Cost of Capital
3. Required Rate of Return
4. Yield to Maturity (or yield)
- Function of Risk, time and expected inflation
- Risk Adjusted Discount Rates (think of credit risk)
- Time Premia (relates to the term structure)
Term Structure is a graph (snapshot) of relation
between yield to maturity and time to maturity
- Impact of Inflation
Returns should be viewed on an inflation adjusted basis
Observe Nominal rates and hear about inflation rates
(1 + Nominal Rate) = (1 + Real Rate)(1 + Inflation Rate)
Factors impacting observed interest rates
Money Supply (Federal Reserve Policy)
Target Interest Rates (Federal Reserve Policy)
Expected Inflation Rates
Perceived Economic Growth and Risk (global & domestic)
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