L1 - Introduction

Question 1

What are the major areas of Finance?

Answer 1

• Asset Pricing (investment)
  
  • CAPM, why hold portfolio over individual stocks (helps reduce the idiosyncratic/ unsystematic risk).
• Corporate finance
  
  • DCF, valuation
• Financial institutions
• International finance

Question 2

Types of Financial Assets

Answer 2

Real –> tangible and physical assets

Financial –> claim on the cashflow produce by underlying Real Asset

Question 3

What are Certificates of Deposits?

Answer 3

Certificate of Deposit –> is bank savings

A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time

Question 4

What are Commercial Papers?

Answer 4

• Commercial papers –> a way of businesses to raise short term cash
• Commercial paper is a common form of unsecured, short-term debt issued by a corporation.
• Commercial paper is typically issued for the financing of payroll, accounts payable, inventories, and meeting other short-term liabilities.
• Maturities on most commercial paper ranges from a few weeks to months.
• Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.

Question 5

What are Bankers acceptance?

Answer 5

• Bankers acceptance –> between the customer and supplier - like trade credit, allows them to buy the product without enough money
  
  • Kind of like debt factoring
• The banker’s acceptance is a form of payment that is guaranteed by a bank rather than an individual account holder.
• BAs are most frequently used in international trade to finalize transactions with relatively little risk to either party.
• Banker’s acceptances are traded at a discount in the secondary money markets.