FIN 421 Lecture 1: Financial Markets Complete Exam Study Guide.

Lecture 1: Financial Markets FIN 421 – Fall 2020 Professor Michael Barnett Outline 1 The finance industry 2 Types and characteristics of financial assets 3 Trading basics The Financial System Basic Functions of the Financial System Financial assets contribute indirectly to the productive capacity of the economy by providing: • Efficient allocation of funds. • Consumption timing (saving for retirement, college borrowing, buying a house) • ’Good ideas’ are able to attract funds for investment • Efficient risk sharing. • Entrepreneur wants to diversify • Managers with cyclical labor income may prefer assets with countercyclical returns to offset their income risk • Professors with acyclical labor income can hold cyclical stocks