Honors Finance and Investment
Prologue/Chapter 1
I.
Finance
A.
Financial Institutions
B.
Investments
C.
Business Finance
II.
The Financial Environment
III.
Sources of Finance
A.
Balance Sheet
1.
B.
Assets
1.
C.
Liabilities
1.
D.
Equity
1.
IV.
Risk and Return
A.
Return
1.
B.
Risk
1.
C.
Financial Leverage
1.
Use of borrowed funds in return for agreeing to pay
a fixed return; use of debt financing
D.
Valuation
1.
Process of determining what an asset is currently
worth
V.
The Role of Financial Markets
A.
Two important functions
1.
2.
VI.
Financial Markets and the Transfer of Savings
A.
B.
What should I do with my savings?
1.
2.
3.
C.
What NOT to do with my savings
1.
a)
D.
Idle funds do not earn a return
Financial Markets
1.
The mechanism to transfer savings into productive
uses
2.
The most important function of the financial system
is to transfer savings into investments
E.
Two basic methods for transferring funds
1.
a)
2.
a)
b)
c)
VII. The Role of Money
A.
Money
1.
a)
Shells
b)
Stones
c)
Metals
d)
Coins
e)
Paper Money
2.
What serves as money one place may not serve as
money in another place
B.
Store of Value
1.
You can store the value of money for the future
a)
b)
c)
d)
e)
f)
C.
Liquidity
1.
a)
D.
Short-term debt
Marketable
1.
VIII. Measures of Money Supply
A.
Money Supply
1.
B.
M-1
1.
Sum of coins and currency in circulation outside of
banks plus demand deposits (includes interest bearing
checking accounts and travel checks)
C.
M-2 (broader definition)
1.
Includes not only demand deposits, coins, and
currency but also regular savings accounts and small
certificates of deposit
2.
Savings accounts constitute about _______ of the
money supply
IX.
The Role of Interest Rates
A.
Interest
1.
2.
3.
4.
Interest rates are based on:
a)
b)
c)
d)
5.
B.
Short-term Debt
1.
C.
Long-term Debt
1.
X.
The Term Structure of Interest Rates
A.
B.
Yield Curve
1.
Graph relating interest rates and the term to
maturity
2.
Positively sloped yield curve
3.
XI.
Negatively sloped yield curve (Due to inflation)
Determinants of Interest Rates
A.
B.
C.
D.
E.