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Transcript
The Finance Sector & Careers A Discussion Pank Agrrawal, Ph.D. Astt. Prof. Finance The Financial Services Sector Career Opportunities Sub-groups within the sector Globalization Some search sites 1-1 Why study finance? $’s facilitate transactions, but money itself can be transacted, what is its price? Why go to work? Why invest? Invest in what - education, health, stocks, bonds? All? Now? Local stocks, national stocks or global stocks? How? Where? Why not bonds? 1-2 Why ask why?… How do I value stocks/bonds? Go to or Look at what? If T-bond rates go up – T-Bonds do what? And the US $? Points on a mortgage sound good. Really? Should I borrow to start my business? At what rate? 1-3 Simple Complexities of Finance: 3 Questions If your initial investment declines by 50%, what percentage increase will bring you back to even? +50%, +49%, +51%, +100%, +200% If the average annual returns for the past two years has been –50% and +50%, what is the return on your investment over those two years? –1%, 0%, –25%, -75%, +11%,+25% If your investment has trebled in value, what is the associated percentage rise? (1% =1/100) 1-4 Finance sub-specializations Financial Intermediaries: Banking Corporate Finance: Managing the financing of corporations Investment Management: Portfolio Management 1-5 PA: Finance as % of US GDP 1998 gdp=$8.5T 2005 gdp=$12.5T 1T=10^12=10 00B=1000*1000M http://www.bea.gov/ 1-6 Types of financial institutions Commercial banks - Citibank Investment banks – Goldman Sachs Mutual savings banks Credit unions – University CU Pension funds – Corporate PFs Life insurance companies – Met Life, NY Life Mutual funds – Fidelity, Vanguard, Schwab Hedge funds - Bridgewater, DE Shaw, Citadel 1-7 Hedge Funds $ 1.5 Trillion Sub-industry Historically the stock market value has been about 58% of GDP. Lows were in the range of 37% in the early 1950s, and 25% at the bottom of the Great Depression. Today the rate is around 100% ($13 Trillion) Citadel, Campbell From: Wikipedia.com 1-8 Finance Jobs 1-9 Financial Management Issues of the New Millennium The effect of changing technology: lower costs, efficient, barriers to entry lowered The globalization of investing – cointegration – EWA, EWT, IFN, EFA, SPY 1-10 EWO, EWT, IFN, EFA, SPY, EZA, GE 1-11 Relevance of Finance and Globalization: If you are a Doctor / Engineer– how does FM affect you? For self decisions – day to day Good business organization If you are a Nebraska Homebuilder– how does Globalization affect you? Local economy – wheat demand - global Interest rates –global- housing demand 1-12 USD vs EUR, INR http://finance.yahoo.com/currency 1-13 Percentage of Revenue and Net Income from Overseas Operations for 10 WellKnown Corporations Company % of Revenue from overseas % of Net Income from overseas Coca-Cola 60.8 35.9 Exxon Mobil 69.4 60.2 General Electric 32.6 25.2 General Motors 26.1 60.6 IBM 57.9 48.4 JP Morgan Chase & Co. 35.5 51.7 McDonald’s 63.1 61.7 Merck 18.3 58.1 3M 52.9 47.0 Sears, Roebuck 10.5 7.8 1-14 Responsibility of the Finance Staff Maximize stock value by: Forecasting and planning Investment and financing decisions Coordination and control Transactions in the financial markets Managing risk 1-15 Decision making in Finance Decisions made by financial managers: Investment decisions [which project,where] Financing decisions (the relative use of debt vs Policy decisions equity financing) taxation] [retained earnings use, dividends, The external environment [no control] ceteris paribus – not a bus in paris 1-16