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Class 6

Finance is the study of how individuals, businesses, and governments allocate resources over time to maximize wealth. Key concepts in finance include the time value of money, financial markets and institutions, risk and return, and financial statements. The major areas of finance are corporate finance, investments, financial markets and institutions, and personal finance. Important financial instruments are stocks, bonds, mutual funds, and derivatives. Financial analysis tools are used to evaluate investments and make optimal financial decisions.

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21 views3 pages

Class 6

Finance is the study of how individuals, businesses, and governments allocate resources over time to maximize wealth. Key concepts in finance include the time value of money, financial markets and institutions, risk and return, and financial statements. The major areas of finance are corporate finance, investments, financial markets and institutions, and personal finance. Important financial instruments are stocks, bonds, mutual funds, and derivatives. Financial analysis tools are used to evaluate investments and make optimal financial decisions.

Uploaded by

Marko Lanz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Finance Class Notes

Topic: Introduction to Finance

I. What is Finance?

Definition: Finance is the study of how individuals, businesses, and governments allocate resources
over time and make decisions in order to maximize wealth or utility.

II. Key Concepts

1. Time Value of Money (TVM)

Money has a time value because a sum of money today is worth more than the same sum in the
future.

TVM concepts include present value, future value, discounting, and compounding.

2. Financial Markets and Institutions

Financial markets are where buyers and sellers trade financial assets like stocks, bonds, and
currencies.

Financial institutions are intermediaries that facilitate the flow of funds in the financial system.

3. Risk and Return

Investors face a trade-off between risk and return. Higher risk is generally associated with the
potential for higher returns.

Key measures: risk-free rate, risk premium, and the efficient frontier.

4. Financial Statements

Financial statements (income statement, balance sheet, cash flow statement) provide insights into
a company's financial health and performance.
III. Types of Finance

1. Corporate Finance

Concerned with financial decisions made by businesses, including capital budgeting, capital
structure, and working capital management.

2. Investments

Focuses on how individuals and institutions make investment decisions, build portfolios, and
manage risk.

3. Financial Markets and Institutions

Examines the structure and functioning of financial markets and institutions, including banks, stock
exchanges, and regulatory bodies.

4. Personal Finance

Addresses individual financial planning, budgeting, saving, investing, and retirement planning.

IV. Key Financial Instruments

1. Stocks

Ownership shares in a corporation, representing a claim on assets and earnings.

2. Bonds

Debt securities that represent a loan made by an investor to a borrower (usually a corporation or
government).
3. Mutual Funds

Investment vehicles that pool money from multiple investors to purchase a diversified portfolio of
stocks, bonds, or other securities.

4. Derivatives

Financial contracts whose value is derived from an underlying asset (e.g., options, futures, swaps).

V. Financial Analysis Tools

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