Finance

Concepts & Current Topics

Course Detail

Basic financial language

Conceptual skills

Emphasis is on applying concepts to current financial topics

Reading & team intensive

Complete readings before class

Resources

FFM – Fundamentals of financial management

FMR – Fundamentals of finance reader

CFE – Course of financial English

Handouts/Website postings for current topics

Course overview by week

1 Introduction

2 Fundamental concepts

3 Financial assets

4 Capital budgeting

5 Capital structure

6 Working capital

7 Midterm exam

8 Derivatives

9 multinationals

10 hybrids

11 central banks

The Fed & PBOC

World Bank & IMF

Exchange rates

2008 financial crisis

Final exam

Assessments

Team presentations Debates (maximum 10 bonus points) Case presentations Team formation due January 17

Quizzes (2)

Examinations (midterm & final) Open book & notes

Contact Information

Office: 20/F Building B, S&T Plaza, TUSP, No. 1

Telephone: 15810169471

Email: popham10@yahoo.com

Website: www.schoolrack.com/BillCurtis

An Overview of Financial Management

Chapter 1

Financial management areas

Money & capital markets

Investments

Financial management

Money & capital markets

Money A commodity or asset, such as gold, an

officially issued currency, coin or paper note, that can be legally exchanged for something equivalent, such as goods or services. 

Capital Financial assets or the financial value of

assets, such as cash, available for use Capital markets Financial markets that facilitate the flow of

long-term funds

Current trends in finance

Globalization Is McDonald’s an American company? Over 60% of its net income is generated outside

the U.S. Information technology

Space Time Information access Electronic commerce

Forms of business organization

Sole proprietorships Partnerships Corporations

Sole proprietorship

Unincorporated business owned by an individual Advantages

Easy and inexpensive to start Few government regulations Avoids corporate income taxes

Disadvantages Difficult to obtain capital Unlimited liability

Legal debts or obligations that arise during the course of business operations. 

Life of the business limited to the life of the owner

Partnership

An unincorporated business owned by 2 or more persons

Advantages are similar to sole proprietorships, plus: Specialized expertise Synergy among partners (1+1=3?)

Disadvantages Unlimited liability Limited life of the organization Difficulty in transferring ownership Mutual obligations Difficulty to raise large amount of capital

Corporation

A legal entity (person) separate from its owners and managers

Advantages Unlimited life Easy transferability of ownership Limited liability Can raise large amount of capital (stocks & bonds)

Disadvantages Setting up a corporation Double taxation (corporate and earnings paid out

as dividends) Subject to take-over

Staff and management goals

Financial staff responsibility: obtain and use funds to maximize the value of

the firm Management responsibility:

Maximize stockholder’s wealth = maximize stock value

Other responsibilities? Ben & Jerry’s?

Business ethics—company’s attitude and conduct toward its employees, customers, suppliers, community, employees, stockholders

Agency relationships

Principals hire agents to perform services (delegation)

Financial management’s agency relationships: Stockholders and managers Managers and debt holders (creditors)

Agency problem A potential conflict of interests between the

agent and stockholders or creditors

Agency relationships

Motivating managers to act in the stockholders best interests Performance shares Executive stock options Direct intervention by stockholders (institutional

investors) Threat of firing Threat of hostile take-over

Managerial actions to maximize shareholder wealth

What determines the price of a company’s stock? Factors include: A financial asset is related to its ability to

generate cash flows Timing of cash flows—sooner is better Investors are risk averse—they’ll pay more for

stock that generates consistent cash flows Investment decisions How to finance the firm

Debt & equity mix Dividend policy decision—what to give out,

what to retain