Transcript
How to read financial papers
Basic financial terms, instruments and markets to
know in order to understand news
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How to read financial papers
How to get information for
the best investments?
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Would you have invested?
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December 1977: Arrested for bad driving
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The entire Microsoft staff.
Albuquerque, 1978
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Learning goals
Define Finance and the Financial System
Understand the relationship between
financial institutions and markets
Describe the role of money and capital
flow in the financial system
Define the money and its functions6
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Materials to learn from
Stephen Valdez: An Introduction to Global Financial
Markets,Macmillan Press Ltd.1997 – chapter 1
György Székely: The Essence of Money and Banking
A Handbook for Financial Managers. KJK-Kerszöv Kft. 2002. CH 1
Lawrence J. Gitman: Principles of Managerial Finance, Addison -
Wesley 10th Edition – see sharepoint: CH1:21-28old.
Sharepoint: Keown CH2 Financial Markets and Interest rates
Lecture ppt.
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Indicative aim
Link theory with the ‘real’ world.
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"In my whole life, I have known no wise people
(over a broad subject matter area) who didn't
read all the time - none, zero."-- Charlie
Munger
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Money = Happiness?
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Power of Money and Finance
"We witnessed the collapse of the financial
system,' said Mr. Soros. "There's no sign we
are anywhere near the bottom."
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Securities
Funds
FINANCIAL MARKETS
-Money and Capital
markets
-OTC, Stock- exchanges
Funds
?
LENDERS
-HOUSEHOLDS
-Government
Funds
priv.placement
?
BORROWERS
-COMPANIES
-Government
-Municipalities
Deposits
Funds
Loans
Funds
FINANCIAL
INSTITUTIONS
-Commercial
banks,Investment banks,
Mutual funds,Leasing
comp.,etc. 13Vallyon Andrea 2010
Investment decision
„All there is to investing is picking good
stocks at good times and staying with them
as long as they remain good companies„
Warren Buffett
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Money evolution
I. Direct interchange of commodities (barter trade)
II. The general equivalents (salt, slaves etc.)
– Served as a basis of comparison
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Criteria of money
Physical essentials:
– Cheap to produce
– Homogeneously equal
– Highly divisible
– Convenient to carry
– Universally acceptable
– Stability in value
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III. Functions of money
– Measure of value (értékmérő)
– Means of turnover (forgalmi eszköz)
– Medium of payment, medium of exchange (fizetési
eszköz) –standard of deferred payment (halasztott
fizetési eszköz)
– Store of wealth (kincsképző)
– World money – if accepted internationally
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When did money first appear?
All equivalents are money
Karl Marx – only gold
Today?
–credit money system
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Think About That!:
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Era of metals
Monometallism
Bimetallism
Greshams axiom. The good money was
crowded out by the worse
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Money substitutes
Growing turnover
Need to increase rotation
Appearance of
substitutes
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Money substitutes 2
Acceptability
Discounting papers
Commercial papers, trade bills
(kereskedelmi váltó)
Today –e-money
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Pyramid shape
analysis
For long term
Fundemental analysis
Economic variables
and the exchange rate
Q?
company
country
world economy
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Participants
bearish and bullish
traders and
speculators
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A VERY Bad Bear!
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Market terminologies
– Secondary and primary
– Money and bond market, domestic and international markets
– Wholesale and retail market
– Open and closed ( open offer for sale and private placing
– Claim for the interest (Bearer and registered securities)
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Money market
Short term instruments
Pure discount securities
Contracts up to 1 year
Huge volume and vigorous competition
No physical place
Essentially for professionals ( banks, fin. institutional
investors, brokerage firms, companies)
Liquidity ( fine spreads based on interest rate of lending
and borrowing)
Creditworthiness (risk and return)
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Financial instruments
Money market instruments
– Treasury bills (T-bill)
– Local authority/ public utility bills
– Certificate of deposit (CD)
– Commercial paper (CP)
– Bill of exchange
– Bankers` acceptance (BA)
– Federal agency securities (Fannie Mae)
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Financial instruments
Other possibilities
– Call money
– Interbank market
– Repurchase agreement /repo/
– - Time deposit
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Call money
– Call money
– Term: very short period of time
• Overnight(12p.m-12p.m. next day)
• 3 or 7 days notice
– Negotiable: no
– Money is lent by one bank to another
and may be called back anytime
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Money market securities
T-bills
– Domestic instruments issued by governments to raise short term finance
balancing cashflow
– Non-interest bearing and interest-bearing, sold at discount in auction
– Negotiable
– Generally 13,26,52 weeks
Certificate of deposit - CD
– Usually issued by banks, is simple the evidence of time deposit
– Negotiable not as time deposit
– Sold at discount or pay coupon
– Interest payed at maturity
– 30 days to 3 month or could be longer
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Money market securities 2
Commercial paper- CP
– Issued by large, safe and well-known
companies bypassing banks to achieve lower
borrowing rates (sometimes below the bank’s
prime rate)
– Very short term (max 270 days, most 60days
or less)
– Issued at discount
– Unsecured security
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Money market securities
Trade bill, bills of exchange,
bankers’acceptance
– Used by companies for trade purposes
– The seller draws up a bill to the buyer to pay
and asks to sign it
– Could be sold at a discount to the bank
– Bank’s signature is a guaranty ( eligible bills
in UK the Bank of England is the guarantor)
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Capital market
Instruments
– Bonds
– Government bonds
– Local authority papers
– Mortgage or other assets backed bonds
– Corporate
– Foreign
– Junk
– Shares
– Preferred
– Normal
Innovations
– Convertibles
– Variables
Investment notes34Vallyon Andrea 2010
Thanks for your attention!
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