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Fundamentals of Corporate Finance
Why Corporations Need Financial Markets and Institutions
Richard A. Brealey Stewart C. Myers
Alan J. Marcus
Slides by Matthew Will
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved
2.2 Topics Covered The Importance of Financial Markets and Institutions The Flow of Savings to Corporations Functions of Financial Markets and of Financial Intermediaries Value Maximization and the Cost of Capital .
2.3 Financial Markets Money Primary Markets OTC Markets Secondary Markets .
2.4 Financial Markets Financing Decision Source of Funds “Capital” Capital Structure Money Markets Euros .
2.5 Financial Markets Issue Securities Company Cash Reinvested Investors Cash .
2.6 Financial Markets Financial markets Stock markets Fixed-income markets Money markets Markets for Commodities Foreign exchange Derivatives Corporation Investment in real assets Reinvestment Investors worldwide Financial Intermediaries Mutual Funds Pension funds Financial Institutions Banks Insurance companies .
Brokerage Firms .7 Financial Institutions Company Obligations Funds Intermediaries Banks Insurance Cos.2.
8 Financial Institutions Intermediaries Obligations Funds Investors Depositors Policyholders Investors .2.
9 Financial Markets $ Bank of America Sells shares $ Explorer Fund Issues shares Investors .2.
Obligations Funds Intermediary Obligations Funds Brokerage Firms Depositors Policyholders Investors Investor .10 Financial Markets Company Banks Insurance Cos.2.
5 mil Banks Intermediary Deposits Cash Depositors Investor .2.11 Financial Markets Company Loan $2.
5 mil Insurance Company Intermediary Sell policies Cash Policyholders Investor .2.12 Financial Markets Company Issue Debt $2.
2.1 Households Rest of world Banks Insurance Cos Pension Funds Mutual Funds Other 5.13 Total U.S.4 20.3 14.6 10 .5 28. Financing % Holdings of Corporate and Foreign Bonds (Qtr 3.2 9. 2007) 12.
4 28.3 27.1 Households Rest of world Banks Insurance Cos Pension Funds Mutual Funds Other 12. 2007) 1.3 . Financing % Holdings of Corporate Equities (Qtr 3.6 22.14 Total U.3 8 0.2.S.
2.15 Function of Financial Markets Transporting cash across time Risk transfer and diversification Liquidity Payment mechanism Provide information .
71% 5.38 7. Credit Rating AAA AA A BBB BB B Interest Rate 5.2. .78 6.84 10.16 U.12 9.82 Source: Bloomberg Composite Corporate Bond Indexes. Financing Information Provided by Financial Markets Commodity prices Interest rates Company values Interest rates on 30-year corporate bonds.S. February 2008.
2008 .17 Value of Alaska Air Group Data as of January.2.
2.18 Value Maximization .
2.19 Web Resources .