fin 3200
Definition of Finance:
Finance is a discipline that deals with how to get money optimally and how to use money optimally.
Ten Fundamental Concepts of Finance
I. Financial Institutions, Financial Instruments and Markets
Financial System
On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy.
The five basic components of financial system are:
1. Money
2. Financial institutions
3. Financial instruments
4. Financial markets
5. The central bank
Money
The definition of money is at least cash and demand deposits (checking accounts). Several people, furthermore, add time deposits to that definition. The poorest countries don’t even have money, so the financial system can’t exist there. Money (a stable currency) is the most fundamental component and a pre-requisite of any financial system.
Financial Institutions
Financial institutions include 1) investment banks, 2) commercial banks, 3) Financial service corporations 4) credit unions, 5) pension funds 6) life insurance companies, 7) mutual funds 8) ETF’s, 9) hedge funds, 10) private equity companies. Financial institutions are regulated to ensure the safety of the institutions and protect investors (with the exception of hedge funds and private equity companies).
Investment banks: help companies raise capital by coming up with securities with features those investors like, buy the securities from the company, and resell them. Investment bankers are also known as underwriters because the banks guarantee the firms will raise the capital they need. The investment banker acts as a facilitator for savers to businesses.
Commercial banks: aka “department stores of finance” because they do not only serve specific savers and borrowers, but a variety. These include Bank of America,
Finance is a discipline that deals with how to get money optimally and how to use money optimally.
Ten Fundamental Concepts of Finance
I. Financial Institutions, Financial Instruments and Markets
Financial System
On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy.
The five basic components of financial system are:
1. Money
2. Financial institutions
3. Financial instruments
4. Financial markets
5. The central bank
Money
The definition of money is at least cash and demand deposits (checking accounts). Several people, furthermore, add time deposits to that definition. The poorest countries don’t even have money, so the financial system can’t exist there. Money (a stable currency) is the most fundamental component and a pre-requisite of any financial system.
Financial Institutions
Financial institutions include 1) investment banks, 2) commercial banks, 3) Financial service corporations 4) credit unions, 5) pension funds 6) life insurance companies, 7) mutual funds 8) ETF’s, 9) hedge funds, 10) private equity companies. Financial institutions are regulated to ensure the safety of the institutions and protect investors (with the exception of hedge funds and private equity companies).
Investment banks: help companies raise capital by coming up with securities with features those investors like, buy the securities from the company, and resell them. Investment bankers are also known as underwriters because the banks guarantee the firms will raise the capital they need. The investment banker acts as a facilitator for savers to businesses.
Commercial banks: aka “department stores of finance” because they do not only serve specific savers and borrowers, but a variety. These include Bank of America,