FIN 201 Introduction to Business

Finance
Session 3 4

Fall 2016

Zaufishan Zaidi
 Importance of Financial Markets
Flow of Funds
1. Direct Transfer
2. Indirect Transfer through an Investment Banker
3. Indirect Transfer through a Financial Intermediary
 Importance of Financial Markets
Market Efficiency
Economic Efficiency
Informational Efficiency
Weak Form
Semi-strong
Strong
 Types of Financial Markets
Money Markets vs Capital Markets

Debt Markets vs Equity Markets

Primary Markets vs Secondary Markets

Derivatives Markets
Call Option
Put Option
Futures
 Types of Stock Market activities
1. Trading in the outstanding, previously issued shares of established,
publicly owned companies: the secondary market
2. Additional shares sold by established, publicly owned companies: the
primary market
3. New public offerings by privately held firms: the initial public offering (IPO)
market; the primary market
 Stock Markets
Physical Stock Exchange
Exchange Members
Listing Requirements

The Over-The-Counter (OTC) Market

 Investment Banking Process
Raising Capital: Stage I Decisions
Dollars to be raised
Types of securities used
Competitive bid versus negotiated deal
Selection of an investment banker

Raising Capital: Stage II Decisions

Reevaluating the initial decisions
Best Efforts or Underwritten issues
Issuance (floatation) costs
Setting the offering price
 Financial Intermediation
Benefits
Economic well-being
Reduced Costs
Risk Diversification
Funds Divisibility/Pooling
Financial Flexibility
Related Services
 Financial Institutions
Commercial Banks
Mutual Funds
Whole Life Insurance Companies
Pension Funds
 Financial Crisis 2007-08

Video
 Financial Crisis 2007-08
Leverage

Collateralized Debt Obligations

Credit Default Swap

Sub-prime Mortgages

Frozen Credit Markets