Banking & finance
DE HEL
MADE BY HELENA ROOSE
,Inhoudsopgave
Chapter 1 Goals and governance of the corporation.........................................................................4
Investments and financing decisions.................................................................................................4
Investment decision......................................................................................................................4
Financing decisions.......................................................................................................................4
What is a corporation?..................................................................................................................5
Financial Manager(s).....................................................................................................................6
Goals of the corporation..............................................................................................................6
Agency problems, Exec. Comp. and Corp Govern.........................................................................6
Ethics of maximizing value............................................................................................................7
Snippets of Financial history.........................................................................................................7
Exercises........................................................................................................................................8
Chapter 2 Financial markets and institutions....................................................................................8
The importance of financial markets.................................................................................................8
The flow of savings to corporations..................................................................................................8
Structure of financial markets.......................................................................................................9
Other financial markets .............................................................................................................10
Financial intermediaries..............................................................................................................11
Functions of financial markets....................................................................................................11
The crisis of 2007-2008 (-2009) VIDEO............................................................................................11
Exercises......................................................................................................................................12
Chapter 3 Accounting – bank balance sheet...................................................................................13
The bank balance sheet..................................................................................................................13
Exercise slide 7............................................................................................................................13
Banks creating money.....................................................................................................................14
Exercise slide 14..........................................................................................................................14
General principles of bank management: Capital Adequacy management ....................................14
Chapter 5 The time value of money................................................................................................14
Future Values and Compound Interest............................................................................................15
Present values.................................................................................................................................15
Time value of money.......................................................................................................................15
Future Value of Multiple Cash Flows...............................................................................................16
Present Value of Multiple Cash Flows.............................................................................................16
Exercises......................................................................................................................................16
Perpetuities and Annuities..............................................................................................................17
Annuities Due..................................................................................................................................18
Effective Interest Rates....................................................................................................................18
Inflation...........................................................................................................................................18
Exercises......................................................................................................................................19
Chapter 6 Valuing bonds.................................................................................................................19
The Bond Market.............................................................................................................................19
Interest Rates and Bond Prices........................................................................................................19
Bond yields......................................................................................................................................20
Bond Rates of Returns.....................................................................................................................21
The Yield Curve................................................................................................................................21
Nominal and Real Rates of Interest.................................................................................................21
Default risk......................................................................................................................................21
2
, Protecting against default risk........................................................................................................22
Corporate Bonds.............................................................................................................................22
Exercises......................................................................................................................................22
Chapter 7 Valuing stock..................................................................................................................22
Stocks and the Stock Market...........................................................................................................22
Market Values, Book Values, and Liquidation Values......................................................................23
Valuing Common Stocks (important)..............................................................................................23
Simplifying the Dividend Discount Model........................................................................................24
Valuing Non-Constant Growth .......................................................................................................24
Discounted cash flow calculations...................................................................................................25
No free lunches...............................................................................................................................25
Random walk theory.......................................................................................................................25
Another tool....................................................................................................................................25
Efficient-Market Theory ..................................................................................................................25
Market Anomalies...........................................................................................................................25
Exercises......................................................................................................................................26
Chapter 14 Intro to Corp finance.....................................................................................................26
Types of Securities ..........................................................................................................................26
Patterns of Corporate Financing.....................................................................................................26
Common stock.................................................................................................................................26
Voting systems............................................................................................................................27
Preferred stock................................................................................................................................27
Corporate Debt ...............................................................................................................................27
Default risk..................................................................................................................................28
Corporate debt............................................................................................................................28
Asset backed bonds.....................................................................................................................29
Convertible Securities......................................................................................................................29
Exercises......................................................................................................................................29
Chapter 15 Venture capital and IPO’s.............................................................................................29
Venture capital – what?..................................................................................................................29
Venture capital – who?...................................................................................................................30
Sources of VC..............................................................................................................................30
Venture capital – how?...................................................................................................................30
Exercise.......................................................................................................................................30
Venture capital – crowdfunding......................................................................................................30
Initial Public Offering.......................................................................................................................31
Arranging Public Issues...............................................................................................................31
IPO flowchart..............................................................................................................................32
Underwriting Arrangements.......................................................................................................32
Initial Public Offering benefits.....................................................................................................32
General Cash Offers........................................................................................................................33
Rights Issue.....................................................................................................................................33
Exercises......................................................................................................................................33
Chapter 22 International financial management.............................................................................33
Foreign Exchange Markets..............................................................................................................33
Foreign Exchange Markets – spot rates......................................................................................34
Foreign Exchange Markets – forward rates.................................................................................34
Hedging currency risk......................................................................................................................34
Hedging methods........................................................................................................................34
Exercises......................................................................................................................................35
3
, EXTRA INFORMATION, GOOD TO KNOW, READ!............................................................................35
Banking & finance
Chapter 1 Goals and governance of the corporation
= doelen en bestuur van de onderneming
NOT: careers in Finance & preview of coming attractions
Ethics of business = core message of chapter 1, don't study details!!!
Facts:
- Sale of financial assets e.g. loans, shares
- To issue shares = to sell shares
Investments and financing decisions
WHY? If you want to grow from a small beginning to a major corporation, you have to make
good investments and financing decisions.
WHAT? To carry on business (zaken doen) a corporation needs a variety of assets:
- Tangible assets (activa): plant, machinery, office buildings, vehicles…
- Intangible assets: brand names, patents
HOW to finance these assets?
- Borrowing
- Reinvesting profits back into the firm
- Selling additional shares to the firm's shareholders
Investment decision
= capital budgeting (kapitaalbegroting)
= spending money
= CAPEX (capital expenditures)
- Tangible or intangible
- ‘What will we acquire/buy with our money?’ purchase of assets (aankoop van activa)
Financing decisions
= raise money for investment
- Raising money from investors
- Equity vs Debt (aandelen, eigen vermogen vs schulden)
o Equity: claim on company, long term
o Debt: no claim on company
4
DE HEL
MADE BY HELENA ROOSE
,Inhoudsopgave
Chapter 1 Goals and governance of the corporation.........................................................................4
Investments and financing decisions.................................................................................................4
Investment decision......................................................................................................................4
Financing decisions.......................................................................................................................4
What is a corporation?..................................................................................................................5
Financial Manager(s).....................................................................................................................6
Goals of the corporation..............................................................................................................6
Agency problems, Exec. Comp. and Corp Govern.........................................................................6
Ethics of maximizing value............................................................................................................7
Snippets of Financial history.........................................................................................................7
Exercises........................................................................................................................................8
Chapter 2 Financial markets and institutions....................................................................................8
The importance of financial markets.................................................................................................8
The flow of savings to corporations..................................................................................................8
Structure of financial markets.......................................................................................................9
Other financial markets .............................................................................................................10
Financial intermediaries..............................................................................................................11
Functions of financial markets....................................................................................................11
The crisis of 2007-2008 (-2009) VIDEO............................................................................................11
Exercises......................................................................................................................................12
Chapter 3 Accounting – bank balance sheet...................................................................................13
The bank balance sheet..................................................................................................................13
Exercise slide 7............................................................................................................................13
Banks creating money.....................................................................................................................14
Exercise slide 14..........................................................................................................................14
General principles of bank management: Capital Adequacy management ....................................14
Chapter 5 The time value of money................................................................................................14
Future Values and Compound Interest............................................................................................15
Present values.................................................................................................................................15
Time value of money.......................................................................................................................15
Future Value of Multiple Cash Flows...............................................................................................16
Present Value of Multiple Cash Flows.............................................................................................16
Exercises......................................................................................................................................16
Perpetuities and Annuities..............................................................................................................17
Annuities Due..................................................................................................................................18
Effective Interest Rates....................................................................................................................18
Inflation...........................................................................................................................................18
Exercises......................................................................................................................................19
Chapter 6 Valuing bonds.................................................................................................................19
The Bond Market.............................................................................................................................19
Interest Rates and Bond Prices........................................................................................................19
Bond yields......................................................................................................................................20
Bond Rates of Returns.....................................................................................................................21
The Yield Curve................................................................................................................................21
Nominal and Real Rates of Interest.................................................................................................21
Default risk......................................................................................................................................21
2
, Protecting against default risk........................................................................................................22
Corporate Bonds.............................................................................................................................22
Exercises......................................................................................................................................22
Chapter 7 Valuing stock..................................................................................................................22
Stocks and the Stock Market...........................................................................................................22
Market Values, Book Values, and Liquidation Values......................................................................23
Valuing Common Stocks (important)..............................................................................................23
Simplifying the Dividend Discount Model........................................................................................24
Valuing Non-Constant Growth .......................................................................................................24
Discounted cash flow calculations...................................................................................................25
No free lunches...............................................................................................................................25
Random walk theory.......................................................................................................................25
Another tool....................................................................................................................................25
Efficient-Market Theory ..................................................................................................................25
Market Anomalies...........................................................................................................................25
Exercises......................................................................................................................................26
Chapter 14 Intro to Corp finance.....................................................................................................26
Types of Securities ..........................................................................................................................26
Patterns of Corporate Financing.....................................................................................................26
Common stock.................................................................................................................................26
Voting systems............................................................................................................................27
Preferred stock................................................................................................................................27
Corporate Debt ...............................................................................................................................27
Default risk..................................................................................................................................28
Corporate debt............................................................................................................................28
Asset backed bonds.....................................................................................................................29
Convertible Securities......................................................................................................................29
Exercises......................................................................................................................................29
Chapter 15 Venture capital and IPO’s.............................................................................................29
Venture capital – what?..................................................................................................................29
Venture capital – who?...................................................................................................................30
Sources of VC..............................................................................................................................30
Venture capital – how?...................................................................................................................30
Exercise.......................................................................................................................................30
Venture capital – crowdfunding......................................................................................................30
Initial Public Offering.......................................................................................................................31
Arranging Public Issues...............................................................................................................31
IPO flowchart..............................................................................................................................32
Underwriting Arrangements.......................................................................................................32
Initial Public Offering benefits.....................................................................................................32
General Cash Offers........................................................................................................................33
Rights Issue.....................................................................................................................................33
Exercises......................................................................................................................................33
Chapter 22 International financial management.............................................................................33
Foreign Exchange Markets..............................................................................................................33
Foreign Exchange Markets – spot rates......................................................................................34
Foreign Exchange Markets – forward rates.................................................................................34
Hedging currency risk......................................................................................................................34
Hedging methods........................................................................................................................34
Exercises......................................................................................................................................35
3
, EXTRA INFORMATION, GOOD TO KNOW, READ!............................................................................35
Banking & finance
Chapter 1 Goals and governance of the corporation
= doelen en bestuur van de onderneming
NOT: careers in Finance & preview of coming attractions
Ethics of business = core message of chapter 1, don't study details!!!
Facts:
- Sale of financial assets e.g. loans, shares
- To issue shares = to sell shares
Investments and financing decisions
WHY? If you want to grow from a small beginning to a major corporation, you have to make
good investments and financing decisions.
WHAT? To carry on business (zaken doen) a corporation needs a variety of assets:
- Tangible assets (activa): plant, machinery, office buildings, vehicles…
- Intangible assets: brand names, patents
HOW to finance these assets?
- Borrowing
- Reinvesting profits back into the firm
- Selling additional shares to the firm's shareholders
Investment decision
= capital budgeting (kapitaalbegroting)
= spending money
= CAPEX (capital expenditures)
- Tangible or intangible
- ‘What will we acquire/buy with our money?’ purchase of assets (aankoop van activa)
Financing decisions
= raise money for investment
- Raising money from investors
- Equity vs Debt (aandelen, eigen vermogen vs schulden)
o Equity: claim on company, long term
o Debt: no claim on company
4
