Households: Most basic microeconomic unit
Gov’t: levies taxes and uses the taxes to pay for everything
SEC: Securities Exchange Commission
Circular flow model
Govt services markethouseholdresources marketfirms govt services market
(Consumption) (resource supply) (production input) (production output)
Foreign sector Goods and services market
(imports and exports)
Law of demand: ceteris peribus: all other things constant
Entrepreneurial skills and Factors of production: (Land, labor, capital) Don't forget about the age old question of Define accounting.
Decision made: political directive socialistic economy (for production and not demand.
Feudal system: new money makers/risk takers destroyed this statement.
Income - tax = disposable income
Y-T = C+S
Y^d = C+S
GDP: Value of all the final goods and services produced within our economy
Demand for GDP = C+I+G+ (X-M)
C=64-70% I=14-18% G=17-22% NX=-3 - -5%
GDP= 1. Real (Quantity)
2. Nomina(Value express in todays dollars
Revenue GDP – cost of sales = gross profit
Gross profit – selling, general, admin expenses = interest expenses Interest expenses – taxes = net income (net earnings)
Balance sheet converted to FCF’s
A = L + E
1. Fixed= non-residential and residential
We also discuss several other topics like What is the formation of new neurons?
Don't forget about the age old question of Can cognitive processes be inferred from neuroimaging data?
2. Inventory (0.4% GDP)
production – sale= inventory goods
graph: i vs q
Supply (positive slope): households, firms, govt, foreign sector. Demand (Negative slope): Household, firms, govt, foreign sector
Financial markets are also known as markets for loanable funds.
(Budget surplus) (short/large term capital financing)
Govt Financial market net income (net earning)
Taxes – Govt spendings = Surplus/deficit
What is a market?
Any mechanism bringing buyers and sellers together, so theu can transact in agreement
(2 sides: sellers and buyers)
What is a market price?
Price at which market clears
(willingness and affordability)
Any mechanism that brings buyers and sellers to transact Any mechanism facilitating origination and trade of financial assets with a purpose of transferring loanable funds
Assets = liability + equity
Asset: sources of probable economic benefits
Liability: sources of probable economic sacrifice
Equity: Claim to assets after liabilities are satisfied
Assets acquired= borrowed (liability) or out of pocket (Equity) Assets: tangible and intangible (table from notes) If you want to learn more check out What are the components of a business plan?
Securities: claims to future income and existing assets of the issuer Currencies: money issued by central banking authority
Contracts: agreement to exchange other assets
Mutual funds distribute assets
Primary Vs Secondary market
Public vs private market
Debt vs equity market
Liquidity: relative ease, speed, cost of converting asset into cash at low transaction cost Don't forget about the age old question of What is hedged position?
1. Default risk: actual probability of the event actually taking place 2. Loss severity: actual loss if the event occurs, proportion or percentage
Capital markets: longer term debt (longer than 1 year)
Equity instruments: (no maturity)
Treasury bills: issued by treasury department of US govt T-bills < 1 year < T-notes < 10 years < T-bonds
Commercial paper: short term debt issued by private entities Negotiable bank certificates of deposit (large denominations)
Bank reserves: legally required and excess (federal funds)
Interest carried on: multiple instruments- no tax at all
Municipal instruments: no federal tax on interest earned. Also not at state and local.
Centralized exchanges- centralized trading floor and centralized computer network
Decentralized markets (over the counter- OTC)= not listed stocks (internalization)
Immediate delivery market: spot market
Future delivery market forward, futures, swap, option market
1. Call option: sell
2. Put option: right to buy and sell at a specific time window at a specific price
Derivative instruments: Asset devices its value from another underlined asset Don't forget about the age old question of Who is the daughter of numitor and the mother of romulus and remus?
Direct finance: funds are transferred directly from fund suppliers to users Indirect finance: indirect via financial intermediary
Financial intermediary: market makers (mutual funds)
Go through: mutual funds, pension funds, insurance companies, finance companies, investment bank definitions.
Economic growth increases, consumer wellbeing goes up
Go through: Depository institutions, mutual funds, investment companies, functions of financial intermediaries.
Conditions for investors and issuers.
Future value = Present value (1+i)^N
(FV/PV)^1/N – 1 = i