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Basic Finance

Book · June 2009

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4 authors, including:

Victor Dragota Eugen Mitrica

Bucharest Academy of Economic Studies Bucharest Academy of Economic Studies
64 PUBLICATIONS   477 CITATIONS    27 PUBLICATIONS   159 CITATIONS   

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Catarama Delia
Bucharest Academy of Economic Studies
13 PUBLICATIONS   63 CITATIONS   

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 Contents

1 Basic Concepts in Finance (Victor Dragotă, Delia Cataramă).................. 13

1.1 What Means Finance?............................................................................... 13
1.2 Financial Systems and Financial Markets ................................................ 16
1.3 Price, Value and Valuation. Efficiency of the markets. Normative and
Positive Models. Equilibrium models and Arbitrage Models .................. 22
1.4 Corporate Finance and Public Finance ..................................................... 28
1.5 Summary and Conclusions ....................................................................... 30
1.6 Key Terms ................................................................................................ 30
1.7 Suggested Readings .................................................................................. 31

2 Financial Systems (Victor Dragotă)............................................................. 32

2.1 General aspects......................................................................................... 32
2.2 The Anglo-Saxon Financial System ......................................................... 36
2.3 The Continental European Financial System ........................................... 39
2.4 The Japanese Financial System ................................................................ 41
2.5 The Islamic Financial System................................................................... 43
2.6 Summary and Conclusions ....................................................................... 45
2.7 Key Terms ................................................................................................ 45
2.8 Suggested Readings.................................................................................. 45

3 Financial Markets (Laura Elly Novac, Victor Dragotă) ............................ 46

3.1 Introduction............................................................................................... 46
3.2 Types of Financial Markets ...................................................................... 47
3.3 Components of the Financial Markets ...................................................... 48
3.4 Major players on the Financial Markets ................................................... 50
3.5 Financial assets ......................................................................................... 54
3.6 Summary................................................................................................... 59
3.7 Key Terms ................................................................................................ 59
3.8 Suggested Reading.................................................................................... 60
10 Basic Finance

4 Money Market and Banking System (Eugen Mitrică) ............................... 61

4.1 Money Market ........................................................................................... 61
4.2 Banking System ......................................................................................... 67
4.3 Money Supply, Money Multiplication
Process and Monetary Policy .................................................................... 71
4.4 Summary.................................................................................................... 78
4.5 Key Terms ................................................................................................. 78
4.6 Suggested Readings ................................................................................... 78

5 Capital Market (Eugen Mitrică) ................................................................... 79

5.1 Market Participants.................................................................................... 79
5.2 Capital Market Securities........................................................................... 81
5.3 Primary Market and Secondary Market..................................................... 90
5.4 Capital Market and Domestic Economy .................................................... 92
5.5 Summary.................................................................................................... 94
5.6 Key Terms ................................................................................................. 94
5.7 Suggested Readings ................................................................................... 94

6 Valuation (Eugen Mitrică)............................................................................. 95

6.1 Evaluation of investment projects .............................................................. 95
6.2 Evaluation of securities ............................................................................107
6.3 Companies Evaluation..............................................................................109
6.4 Summary ..................................................................................................112
6.5 Key Terms ................................................................................................112
6.6 Suggested Readings..................................................................................112

7 Market Efficiency (Eugen Mitrică).............................................................113

7.1 Concept of market efficiency ...................................................................113
7.2 Levels of informational efficiency ...........................................................114
7.3 Formal model of informational efficiency................................................116
7.4 Testing the informational efficiency.........................................................117
7.5 Summary ..................................................................................................120
7.6 Key Terms ................................................................................................121
7.7 Suggested Readings..................................................................................121
8 Investments and Portfolio Management (Victor Dragotă) .......................122
8.1 General issues ..........................................................................................122
8.2 Approaches in Portfolio Management .....................................................127
8.3 Summary and Conclusions ......................................................................132
8.4 Key Terms................................................................................................133
 Contents 11

8.5 Suggested Readings .................................................................................133

9 Insurance Markets (Laura Elly Novac)......................................................134
9.1 Risk and insurance ...................................................................................134
9.2 Insurance concepts ...................................................................................136
9.3 Main features of the Insurance Market ....................................................138
9.4 Main players of the Insurance Market .....................................................142
9.5 Products on the Insurance Markets ..........................................................144
9.6 Main Insurance Markets ..........................................................................146
9.7 Summary ..................................................................................................149
9.8 Key Terms................................................................................................150
9.9 Suggested Readings .................................................................................150
10 Real Estate Markets (Victor Dragotă)........................................................151
10.1 General issues.........................................................................................151
10.2 Price and value on real estate markets....................................................156
10.3 Summary ................................................................................................171
10.4 Key Terms ..............................................................................................171
10.5 Suggested Readings................................................................................171
11 Corporate Finance (Delia Cataramă) .........................................................172
11.1 Introduction to corporate finance...........................................................172
11.2 Financial Analysis and Planning............................................................176
11.3 Short – Term Financial Management ....................................................179
11.4 Long – Term Financial Management.....................................................183
11.5 Summary................................................................................................186
11.6 Key Terms .............................................................................................187
11.7 Suggested Readings ...............................................................................187
12 Public Finance (Delia Cataramă)................................................................188
12.1 Introduction to public finance................................................................188
12.2 Needs, goods and theories of public finance .........................................188
12.3 Public expenditures................................................................................191
12.4 Public revenues......................................................................................199
12.5 Public deficit..........................................................................................205
12.6 Summary................................................................................................207
12.7 Key Terms .............................................................................................207
12.8 Suggested Readings ...............................................................................208
Bibliography ........................................................................................................209

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