Intro to Financial Economics
FINANCIAL ECONOMICS
CHAPTER 1
Universitat Pompeu Fabra
Prof.
Prof Ander Pérez Orive
2012-2013
1
Chapter 1
Financial Economics: Instruments and Markets
1. Introduction and Basic Concepts
2. Financial Securities
2.1 Bonds
2.2 Stocks
2.3 Derivatives
2.4 New Trends in Financial Markets
3. Organization of Financial Markets
4. The Statistics of Financial Securities
Appendix A: Margins
Appendix B: Short-selling
References:
BMA: Chapter (section 2 1) Ch t
BMA Ch t 2 ( ti 2.1), Chapter 4 (section 4.1), Chapter 7 (section 7.1)
( ti 4 1) Ch t
( ti 7 1)
MR: Chapters 1,14 and 15.
2
1.
1 Introduction and Basic Concepts
3
Chapter 1
Financial Economics: Instruments and Markets
1. Introduction and Basic Concepts
Defining our topic of study:
“Financial Economics is the study of how best to allocate and deploy resources
(by individuals or firms) across time in an uncertain environment (across states of nature) and the role of economic organizations in facilitating these allocations” Key topics: allocation of resources, intertemporal and uncertain environments, instruments and financial institutions and markets
Key elements:
• A
Agents: h households, fi h ld firms, fi financial i i l intermediaries, governments di i
• Capital markets
4
WHY this desire to move resources around?
• CONSUMERS
- Shift purchasing power (consumption) across time and future states of nature. nature
* Student: no resources today, a lot in the future: borrow!
* Worker: a lot of resources today, no resources when old: save!
* Bad future state: house fire. Avoid it by purchasing insurance
(move resources from non-fire states, to fire states)
• FIRMS
- Moving capital from those who have it to those who can use it productively * No resources today, but great investment opportunities: borrow!
- Avoiding large swings in future profits
* Exporter: hedge exchange rate variations.
5
Two types of financial flows:
• The desire to
CHAPTER 1
Universitat Pompeu Fabra
Prof.
Prof Ander Pérez Orive
2012-2013
1
Chapter 1
Financial Economics: Instruments and Markets
1. Introduction and Basic Concepts
2. Financial Securities
2.1 Bonds
2.2 Stocks
2.3 Derivatives
2.4 New Trends in Financial Markets
3. Organization of Financial Markets
4. The Statistics of Financial Securities
Appendix A: Margins
Appendix B: Short-selling
References:
BMA: Chapter (section 2 1) Ch t
BMA Ch t 2 ( ti 2.1), Chapter 4 (section 4.1), Chapter 7 (section 7.1)
( ti 4 1) Ch t
( ti 7 1)
MR: Chapters 1,14 and 15.
2
1.
1 Introduction and Basic Concepts
3
Chapter 1
Financial Economics: Instruments and Markets
1. Introduction and Basic Concepts
Defining our topic of study:
“Financial Economics is the study of how best to allocate and deploy resources
(by individuals or firms) across time in an uncertain environment (across states of nature) and the role of economic organizations in facilitating these allocations” Key topics: allocation of resources, intertemporal and uncertain environments, instruments and financial institutions and markets
Key elements:
• A
Agents: h households, fi h ld firms, fi financial i i l intermediaries, governments di i
• Capital markets
4
WHY this desire to move resources around?
• CONSUMERS
- Shift purchasing power (consumption) across time and future states of nature. nature
* Student: no resources today, a lot in the future: borrow!
* Worker: a lot of resources today, no resources when old: save!
* Bad future state: house fire. Avoid it by purchasing insurance
(move resources from non-fire states, to fire states)
• FIRMS
- Moving capital from those who have it to those who can use it productively * No resources today, but great investment opportunities: borrow!
- Avoiding large swings in future profits
* Exporter: hedge exchange rate variations.
5
Two types of financial flows:
• The desire to