-Transferring Resources Across Time and Space A financial system provides ways to transfer economic resources through time,across geographic regions,and amongst industries A Dutch household currently has excess funds needed in ten years A Chinese business would become more profitable with new investment funds Financial markets make this match THE COURSE OF FINANCE 2017 SPRING SJTU 16
~Transferring Resources Across Time and Space A financial system provides ways to transfer economic resources through time, across geographic regions, and amongst industries A Dutch household currently has excess funds needed in ten years A Chinese business would become more profitable with new investment funds Financial markets make this match THE COURSE OF FINANCE 2017 SPRING SJTU 16
-Managing Risk A financial system provides ways to manage Risk Funds and risks are always bundled equity debt financing Shareholder and creditor D However,risks may be unbundle and repackaged by a financial system using portfolios,financial derivatives, and guarantees Mortgage loan CDS Stock Option THE COURSE OF FINANCE 2017 SPRING SJTU 17
~Managing Risk A financial system provides ways to manage Risk Funds and risks are always bundled equity & debt financing Shareholder and creditor However, risks may be unbundle and repackaged by a financial system using portfolios, financial derivatives, and guarantees Mortgage loan & CDS Stock Option THE COURSE OF FINANCE 2017 SPRING SJTU 17
-Clearing and Settling Paymens A financial system provides ways of clearing and settling payments to facilitate the exchange of goods,services, and assets Ways Barter (Levi jeans,old stamps coins) Gold(requires purity assay,heavy) Paper money (restricted geographically) Credit cards (not universally accepted) Personal,cashier's or traveler's checks (acceptability varies,denomination) THE COURSE OF FINANCE 2017 SPRING SJTU 18
~Clearing and Settling Payments A financial system provides ways of clearing and settling payments to facilitate the exchange of goods, services, and assets Ways : Barter (Levi jeans, old stamps & coins) Gold (requires purity assay, heavy) Paper money (restricted geographically) Credit cards (not universally accepted) Personal, cashier's or traveler’s checks (acceptability varies, denomination) THE COURSE OF FINANCE 2017 SPRING SJTU 18
-Pooling Resources and Dividing Ownership in Large Assets D A financial system provides a mechanism for the pooling of funds to undertake large-scale indivisible enterprise or for the subdividing of shares in large enterprises with many owners Examples Raising money:IPO (Initial public offering)SEO(Seasoning equity offering)VC,PE Corporation vs.sole proprietorship and partnership Investment:individual with small money----------buying mutual funds---------buying stocks or bonds THE COURSE OF FINANCE 2017 SPRING SJTU 19
~Pooling Resources and Dividing Ownership in Large Assets A financial system provides a mechanism for the pooling of funds to undertake large-scale indivisible enterprise or for the subdividing of shares in large enterprises with many owners Examples Raising money: IPO (Initial public offering) SEO(Seasoning equity offering）VC, PE Corporation vs. sole proprietorship and partnership Investment: individual with small money ----------buying mutual funds---------buying stocks or bonds THE COURSE OF FINANCE 2017 SPRING SJTU 19
-Providing Information A financial system provides price information that helps coordinate decentralized decision-making in various sectors of the economy Examples Both lender and borrow need current prices to evaluate their portfolios of quoted securities A family wants to ask for a mortgage loan which charges 8%interest rate A relative of the family has an excess money which earns 6%rate of return So borrowing from relatives and promise a rate between 6%-8%will benefit both parties THE COURSE OF FINANCE 2017 SPRING SJTU 20
~Providing Information A financial system provides price information that helps coordinate decentralized decision-making in various sectors of the economy Examples Both lender and borrow need current prices to evaluate their portfolios of quoted securities A family wants to ask for a mortgage loan which charges 8% interest rate A relative of the family has an excess money which earns 6% rate of return So borrowing from relatives and promise a rate between 6%~8% will benefit both parties THE COURSE OF FINANCE 2017 SPRING SJTU 20